ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 28, 2012

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to

Commission file number: 1-14770

COLLECTIVE BRANDS, INC.

(Exact name of registrant as specified in its
charter)

Delaware

43-1813160

State or other jurisdiction ofincorporation or organization

(I.R.S. EmployerIdentification No.)

3231 Southeast Sixth Avenue, Topeka, Kansas

66607-2207

(Address of principal executive offices)

(Zip Code)

Registrants telephone number, including area code (785) 233-5171

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock, $.01 par value per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. x Yes ¨ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Exchange Act. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). x Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer and accelerated filer in Rule 12b-2 of the Exchange Act.:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). ¨ Yes x No

The aggregate market value of the registrants common stock held by non-affiliates of the registrant was $713.1
million based on the closing price of $11.78 as reported on the New York Stock Exchange on July 29, 2011, the last trading day of the registrants second fiscal quarter.

Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest
practicable date.

Common Stock, $.01 par value

60,624,604 shares at March 14, 2012

DOCUMENTS INCORPORATED BY REFERENCE

Document

Parts Into Which Incorporated

Proxy Statement for the Annual Meeting ofStockholders to be held on May 24, 2012(Proxy Statement)

This report contains forward-looking statements relating to such matters as anticipated financial performance, business
prospects, technological developments, products, future store openings and closings, international expansion opportunities, possible strategic initiatives, new business concepts, capital expenditure plans, fashion trends, consumer spending patterns
and similar matters. Statements including the words expects, anticipates, intends, plans, believes, seeks, or variations of such words and similar expressions are
forward-looking statements. We note that a variety of factors could cause actual results and experience to differ materially from the anticipated results or expectations expressed in our forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of our business include, but are not limited to, the following: litigation including intellectual property and employment matters; the inability to renew material leases, licenses or
contracts upon their expiration on acceptable terms; changes in consumer spending patterns; changes in consumer preferences and overall economic conditions; the impact of competition and pricing; changes in weather patterns; the financial condition
of the suppliers and manufacturers; changes in existing or potential duties, tariffs or quotas and the application thereof; changes in relationships between the United States and foreign countries, changes in relationships between Canada and foreign
countries; economic and political instability in foreign countries, or restrictive actions by the governments of foreign countries in which suppliers and manufacturers from whom we source are located or in which we operate stores or otherwise do
business; changes in trade, intellectual property, customs and/or tax laws; fluctuations in currency exchange rates; availability of suitable store locations on acceptable terms; the ability to terminate leases on acceptable terms; the risk that we
will not be able to integrate recently acquired businesses successfully, or that such integration will take longer than anticipated; expected cost savings or synergies from acquisitions will not be achieved or unexpected costs will be incurred;
customers will not be retained or that disruptions from acquisitions will harm relationships with customers, employees and suppliers; costs and other expenditures in excess of those projected for environmental investigation and remediation or other
legal proceedings; the ability to hire and retain associates; performance of other parties in strategic alliances; general economic, business and social conditions in the countries from which we source products, supplies or have or intend to open
stores; performance of partners in joint ventures or franchised operations; the ability to comply with local laws in foreign countries; threats or acts of terrorism or war; strikes, work stoppages and/or slowdowns by unions that play a significant
role in the manufacture, distribution or sale of product; congestion at major ocean ports; changes in commodity prices such as oil; and changes in the value of the dollar relative to the Chinese Yuan and other currencies. See also Risk
Factors. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We do not undertake any obligation to release
publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Collective Brands, Inc. (Collective Brands or the Company) is a leader in bringing compelling lifestyle, fashion and performance brands for footwear and related accessories to
consumers worldwide. We operate a portfolio of brands and private brand labels sold at multiple price points through multiple selling channels including retail, wholesale, e-commerce, licensing, and franchising. Collective Brands consists of three
lines of business: Payless ShoeSource (Payless), Collective Brands Performance + Lifestyle Group (PLG), and Collective Licensing (CLI). Payless is one of the largest footwear specialty retailers in the world. We
serve the everyday needs and fashion wants of women, moms, kids, teens, and men. Payless is dedicated to providing incredible values for on-trend and validated styles of footwear and accessories. PLG is a leading provider of iconic performance and
lifestyle brands, each with strong marketplace positions focused on distinct and targeted consumer segments. PLG markets performance and lifestyle footwear and related accessories for adults and children under well-known brand names including
Sperry Top-Sider®, Saucony®, Stride Rite®, and
Keds®. CLI is a brand development and licensing company that specializes in building, launching,
licensing and growing brands focused on the youth lifestyle market, including Above the Rim®,
Airwalk®, Spot-Bilt®, Clinch Gear®,
Lamar®, Sims®, Strikeforce®, and
Vision Street Wear®. CLIs vision is to create the leading youth lifestyle and athletic fashion
branded licensing company in the world. All references to years are to our fiscal year unless otherwise stated. Fiscal year 2011 ended on January 28, 2012.

At the end of 2011, there were 4,303 Payless stores, owned or franchised, in 34 countries and
territories. Payless owned stores in the United States, Canada, Caribbean, Central America, and South America sold over 120 million pairs of footwear and 50 million units of accessories through nearly 450 million customer visits
during 2011. Payless sells a broad assortment of footwear including casual and dress shoes, sandals, boots, slippers, and other footwear categories in a self-selection shopping format. We also sell a broad array of accessories such as handbags,
jewelry, bath-and-beauty products, and hosiery. Our stores feature a variety of mainstream and designer footwear brands including Airwalk®, American Eagle,
Champion®, Christian Siriano for Payless, Dexter®, Isabel
Toledo for Payless, Lela Rose for Payless, and Safe T Step®.
Generally, North American stores are company-owned; stores in the Central and South American regions (as defined in the Stores section below) operate as joint-ventures; and stores in Europe, Asia, and the Middle East are franchised.
Stores operate in a variety of real estate formats. Approximately a quarter of the company-owned stores are mall-based while the rest are located in strip centers, central business districts, and other real estate formats. We also operate
payless.com® where customers buy our products online and store associates order products for customers that are
not sold in all of our stores or are out of stock. Payless stores possess an average of approximately $60,000 worth of inventory at cost depending upon the time of year (see Seasonality section). We focus our marketing efforts in a
variety of traditional and electronic channels primarily on female, budget-conscious consumers who appreciate trend-right product. Our core customer is a female head-of-household about 35-54 years old with children. Her average annual household
income is about $65,000 and she is more likely to be African-American or Hispanic as compared to overall women self-purchasers of footwear in the U.S. Paylesss most addressable consumer segment tends to be households with annual income of less
than $75,000 in the market for non-athletic footwear below $30 per pair.

PLG is a leading provider of iconic performance and lifestyle brands, each
with unique personalities and strong marketplace positions focused on distinct and targeted consumer segments. PLG is predominantly a wholesaler of footwear, selling its products mostly in North America in a wide variety of retail formats including
premier department stores, specialty stores, and athletic and sporting good stores. PLG markets products in countries outside North America through owned operations, independent distributors, and licensees. PLG designs and markets categories of
footwear and related accessories under various brands and trademarks, including:

Fashion-athletic and casual footwear and accessories for adults and children

Stride
Rite®, Robeez®, and other trademarks

Childrens dress, athletic, and casual footwear, boots and sandals

PLG also markets its products directly to consumers through a variety of owned formats:
Stride Rite childrens stores, outlet stores, Stride Rite store-in-stores, Sperry Top-Sider stores, and e-commerce sites. At the end of 2011, there were 356 PLG stores, owned or franchised, in 10 countries.

History

Payless was founded in Topeka, Kansas in 1956 with a strategy of selling low-cost, high-quality family footwear on a
self-service basis. In 1962, Payless became a public company. In 1979, it was acquired by The May Department Stores Company (May Company). On May 4, 1996, Payless became an independent public company again as a result of a spin-off
from May Company. In 1998, we reorganized forming a new Delaware corporation, Payless ShoeSource Inc., which changed its name to Collective Brands, Inc. in August 2007. In March 2007, we acquired Collective Licensing, a Denver-based brand
development, management and licensing company. In August 2007, we completed our acquisition of The Stride Rite Corporation.

The Stride Rite Corporation was founded in Boston, Massachusetts in 1919, as the Green Shoe Manufacturing Company (Green Shoe). Green Shoe became a public company in 1960 and was listed on the
New York Stock Exchange. It adopted The Stride Rite Corporation name in 1966 in recognition of its well-respected brand name. The first Stride Rite childrens store was opened in 1972. The Sperry Top-Sider and Keds brand names were acquired
from Uniroyal in 1979. During 2005, The Stride Rite Corporation completed its acquisition of Saucony and in 2006 it purchased Robeez. In the third quarter of 2009, Collective Brands, Inc. announced that The Stride Rite Corporation will do business
as Collective Brands Performance + Lifestyle Group.

Our principal executive offices are located at 3231
Southeast Sixth Avenue, Topeka, Kansas 66607-2207, and our telephone number is (785) 233-5171. Our common stock is listed for trading on the New York Stock Exchange under the symbol PSS.

Segments and Geographic Areas

We operate our business in four reporting segments: Payless Domestic, Payless International, PLG Wholesale and PLG Retail. See Note 16 in the Notes to the Consolidated Financial Statements for a
discussion on financial results by segment.

The Payless International reporting segment is comprised of international retail stores under the Payless ShoeSource name in Canada, the South
American Region, the Central American Region, Puerto Rico, and the U.S. Virgin Islands, as well as franchising arrangements under the Payless ShoeSource name.

At the end of 2011, we operated a total of 4,496 wholly-owned or joint-ventured retail stores. This was comprised of 3,499
in the Payless Domestic segment, 661 stores in the Payless International segment, and 336 stores in the PLG Retail segment. In addition, we franchised 163 stores.

Payless Domestic

The average
size of a store in the Payless Domestic segment is approximately 3,200 square feet. Depending upon the season and the sales volume of the store, stores employ a varying number of associates, including a store manager or shared store manager. Stores
use a combination of full-time and part-time associates. By including materially remodeled stores in our calculation as new stores, Payless Domestic stores were 12 years old on average at the end of 2011. Payless stores operate in a variety of real
estate formats such as shopping malls, central business districts, free-standing buildings, strip centers, and leased departments in ShopKo® stores. As of year-end, there were 144
ShopKo® locations, and they are included in the table below.

Payless Domestic

Alabama

30

Louisiana

50

Oklahoma

42

Alaska

8

Maine

11

Oregon

45

Arizona

78

Maryland

66

Pennsylvania

141

Arkansas

38

Massachusetts

80

Rhode Island

13

California

477

Michigan

117

South Carolina

24

Colorado

47

Minnesota

48

South Dakota

13

Connecticut

42

Mississippi

36

Tennessee

37

Delaware

7

Missouri

64

Texas

363

District of Columbia

7

Montana

13

Utah

49

Florida

246

Nebraska

30

Vermont

7

Georgia

82

Nevada

28

Virginia

73

Hawaii

14

New Hampshire

18

Washington

82

Idaho

29

New Jersey

120

West Virginia

9

Illinois

143

New Mexico

27

Wisconsin

83

Indiana

52

New York

240

Wyoming

4

Iowa

30

North Carolina

55

Kansas

31

North Dakota

6

Guam

2

Kentucky

28

Ohio

113

Saipan

1

Total Payless Domestic

3,499

Payless International

We opened our first wholly-owned international store in Canada in 1997 and since then our international presence has grown
substantially. We entered Latin America in 2000, and primarily operate stores there through joint ventures. In 2009, we franchised our first stores in the Middle East.

The average size of our stores in the Payless International segment is
approximately 2,800 square feet. By including materially remodeled stores in our calculation as new stores, our international stores were on average seven years old at the end of 2011. Our international stores operate in a variety of real estate
formats, including shopping malls, central business districts, free-standing buildings, and strip centers.

As
of year-end 2011, we had 661 stores in 14 foreign countries or territories that were either wholly-owned or operated as joint ventures. This includes 17 store-in-store locations within two retailers in Colombia.

Since year-end, we have signed agreements with franchisees to operate stores in South
Korea, Thailand, and Vietnam.

PLG Retail

Stride Rite childrens stores are located primarily in larger regional shopping centers, clustered generally in the
major marketing areas of the U.S. The average size of a Stride Rite childrens store is approximately 1,300 square feet. Outlet stores average approximately 2,800 square feet because outlet stores carry a broad range of footwear for adults in
addition to childrens footwear. Most of our outlet stores are located in shopping centers consisting only of outlet stores. Sperry Top-Sider stores average approximately 1,600 square feet and tend to be located in affluent areas that embrace
the nautical lifestyle that the brand projects. Five of the Sperry stores have

a side-by-side Saucony store too, which are counted as one store in the table below. By including materially remodeled stores in our calculation as new stores, PLG Retail segment stores were on
average approximately seven years old at the end of 2011. We also operate Stride Rite shoe departments within select Macys stores. This provides us with a capital efficient, additional distribution channel for our products.

The number of owned retail stores by type for the PLG Retail segment is represented in the following table:

PLG Retail

Stride Rite childrens stores

204

Outlet stores

96

Sperry Top-Sider stores

18

Macys store-in-stores

18

Total PLG Retail stores

336

PLG also franchised 20 free-standing stores outside North America. Each of these stores
is branded Stride Rite and sells all our owned brands in childrens sizes.

PLG Franchised
Stores

Brunei

1

Singapore

2

Hong Kong

2

South Korea

2

Indonesia

1

Turkey

4

Malaysia

4

Total

20

Philippines

4

PLG Wholesale

In addition to the owned and franchised PLG retail stores, we had 97 stores managed by licensed dealers (not included in
the store counts above) at the end of 2011. A licensed dealer is an independent shoe retailer that sells a high percentage of Stride Rite products. We generate sales from dealers by selling them our product. Dealers do not pay franchise or on-going
fees, but must abide by certain requirements in exchange for permission to use the Stride Rite brand. Of the total, 81 stores were located in the U.S. and 16 were located internationally, predominantly in Latin America. Our sales representatives
monitor the dealers assortments and appearance. We give guidance to the dealers on store remodeling. Dealers are not obliged to participate in our store promotions.

International Business

In 2011, 18% of Collective Brands
sales came from outside the U.S. We derived sales from approximately 100 countries or territories through retailing, wholesaling, e-commerce, licensing, and franchising.

Payless International

Payless International sales
were $469.6 million or 14% of total Company sales in 2011. Of the Payless International stores we wholly-own or operate through joint ventures, 44% are located in Canada; 46% are located in Latin America and the Caribbean; and 10% are located in
Puerto Rico.

PLG Wholesale

PLG Wholesale sells footwear in over 90 countries and territories. International wholesale sales totaled $156 million in
2011. We use our owned operations, independent distributors and licensees to market our various product lines outside of the U.S. The largest portion of our international PLG Wholesale sales came from Europe, followed by Canada. We record revenue
from foreign sources through the sale of products by our company-owned sales offices in Canada, Germany, the Netherlands, and the United Kingdom, as well as through sales to independent distributors in other countries.

In addition to owned and distributor operations, we also sell our branded
products through licensing and development arrangements in multiple selling channels. These partners sell PLG products on-line as well as through wholesale and retail. Their retail business is conducted through stand-alone and store-in-store
formats. We have 10 partners operating in 16 countries and territories.

Licensing and development enables us
to sell in certain international markets without incurring development costs and the capital commitment required to maintain foreign operations, employees, inventories, and localized marketing programs. We assist in designing products that are
appropriate to each foreign market, but are consistent with our global brand positioning. Licensing and development partners independently market and distribute our branded products in their respective territories with product and marketing support
provided by us.

Store and Wholesale Operations Management

Collective Brands manages certain support functions such as information technology and finance in a mostly centralized
fashion from its Topeka, Kansas and Lexington, Massachusetts offices. The Company also manages other support functions, such as loss prevention and store-level human resources, in a more decentralized fashion.

Payless Domestic

Our Retail Operations team is responsible for managing the operations of our stores, including functions such as opening and closing, store displays, inventory management, staffing, and managing the
customer experience. Positions and scope are as follows:

Title (or position)

Span of Control (or scope)

Store Leader

Manage one store

Multiple Store Leader

Manage two stores

Group Leader

Manage one store; generally oversee four others

District Leader

Oversee approximately 25 stores

Director of Retail Operations

Oversee approximately 300 stores

Payless International

The international reporting structure is very similar to Payless Domestic. However, the international span of control is
more narrow than domestic as we have fewer international stores that tend to be spread further apart.

PLG Wholesale

The PLG Wholesale business is divided by major brands, each with its own dedicated sales forces.
Generally each sales executive is assigned a specific geographic region.

PLG Retail

Retail locations are managed by a Store Manager who reports to a District Leader. District Leaders typically oversee
approximately 25-30 stores. These positions are responsible for managing the operations of our stores, including functions such as opening and closing, store displays, inventory management, and staffing.

Stride Rite childrens stores offer customers a full-service experience that includes personalized sizing and
fitting of each child by trained specialists. Outlet stores offer limited service in conjunction with a self-selection environment. Sperry stores and store-in-store locations offer full-service and self-selection shopping together.

At the end of 2011, Collective Brands employed approximately 30,000 associates worldwide. Over 26,000 associates worked in stores, while the remaining associates worked in other capacities such as
corporate support, Asia-based procurement/sourcing, licensing, and distribution centers. Our associate base was 47% full-time and 53% part-time and we had 128 associates under collective bargaining agreements at year end.

Payless Domestic

At year-end, nearly 23,000 associates worked in the Payless Domestic segment, of which approximately 40% are full-time and 60% are part-time.

Payless International

The Payless International segment employed over 3,800 associates at year-end, of which approximately 80% are full-time and 20% are part time.

PLG Wholesale

Approximately 900 associates at year-end were employed in various sales and support capacities in the PLG Wholesale segment, almost all of which were full-time associates.

PLG Retail

The PLG Retail segment employed approximately 2,300 associates at year-end, of which approximately 30% are full-time and 70% are part-time.

Competition

As a multi-channel provider of footwear and
accessories, we face several different forms of competition.

We seek to compete effectively by
getting to market with differentiated, trend-right merchandise before mass-market discounters. Payless strives to get trend-right merchandise to market at the same time but at more compelling values than department stores and specialty retailers.
Main competitors include DSW, Famous Footwear, J.C. Penney, Kmart, Kohls, Macys, Marshalls, Ross Stores, Sears, Target, TJ Maxx, and Wal-Mart.

Payless International

Internationally, we also seek
to compete effectively by getting to market with differentiated, trend-right merchandise before mass-market discounters, but at more compelling values than department stores and specialty retailers. Our main competitors in Canada are Spring, The
Shoe Company, SportChek, Sears Canada, Walmart Canada, and Zellers. About 60% of our stores in Canada are in malls. The competitive environment in Canada is becoming more fragmented due to online and other competitors. In addition, the U.S. dollar
exchange rate impacts competition.

In Latin America, our competition varies by country. In Central America
(except for Panama), we have two larger corporate competitors: Adoc and MD. In Colombia, our main competitors are Spring Step, Bata, and Calzatodo. We also compete in Latin America against small independent operators that vary by country.

PLG Wholesale

On a wholesale level, we also compete with many suppliers of footwear. PLG Wholesales most significant competitors include:

PLG Wholesale Brand

Saucony

Sperry

Top-Sider

Keds

Stride Rite

adidas

Coach

Converse

adidas / Reebok

Asics

Cole Haan

Lacoste

Geox

Brooks

Ecco

Toms

New Balance

Mizuno

Rockport

Vans

Nike /Brand Jordan /Converse

New Balance

Sam Edelman

Pedipeds

Nike

Sebago

Primigi

Timberland

Puma

Ugg

Skechers

Teva

Ugg

PLG Retail

We compete in the childrens retail shoe industry with numerous businesses, ranging from large retail chains to
single store operators. The chains include Childrens Place, Dillards, Gap, Gymboree, Nordstrom, and Target.

Seasonality

As an international multi-channel provider of footwear and accessories, we have operations that are
impacted by certain seasonal factors  some of which are common across segments and channels while others are not. For the most part, our business is characterized by four high-volume seasons: Easter, the arrival of warm weather,
back-to-school, and the arrival of cool weather. In preparation for each of these periods, we increase our inventory levels in our retail stores to support the increased demand for our products. For our wholesale business, we increase our inventory
levels approximately three months in advance of these periods to support the increased demands from our wholesale customers for these products. We offer styles particularly suited for the relevant season such as sandals in the spring and boots
during the fall. Our cash position tends to be higher in June as well as September to October, due primarily to cash received from sales during the Easter season and the cash received from sales during back-to-school, respectively. Our cash position
tends to be lowest around February to March when Easter inventories are built-up but not yet sold.

Payless Domestic

Sales are typically highest for Payless Domestic in the first quarter followed closely by the third
then second quarters with lower sales in the fourth quarter.



Our stores tend to have their highest sales around the Easter selling season because customers often shop our stores for holiday-specific footwear
and accessories. This is typically about 1-3 weeks in advance of the holiday.



In second quarter, the arrival of warm weather in most major markets is a meaningful sales catalyst, but typically not quite as strong as Easter.

Back-to-school is a significant sales catalyst in the third quarter as well as the start of cool weather which drives our boot business.



We have lower sales in the fourth quarter compared to the other three quarters. Though holiday season customer traffic is busy relative to many
other months, it does not disproportionately spike like other retailers because footwear tends to be less giftable than other retail alternatives. Furthermore, January tends to be our slowest month and we focus on clearance and spring transition.

Payless International

Payless International seasonality tends to largely resemble Payless Domestic with a few important differences.



First, a greater share of sales tends to come in December compared to Payless Domestic. In fact, December typically means more to Latin America than
Easter does to Payless Domestic. In Puerto Rico and Latin America many workers get an incremental paycheck for the Christmas season.



Secondly, compared to Payless Domestic, back-to-school is even more important for Payless International. Many Latin Americans come together and shop
as family units. Back-to-school is culturally and economically a time to spend together.



Finally, paydays are times when proportionally more is spent on footwear than on other days of a month.

PLG Wholesale

The PLG Wholesale business is customarily driven by demand for spring (i.e. first half) and fall (i.e. second half) seasonal product lines.



PLG Wholesale sales tend to be more first half-weighted compared to second half due to the nature of our brands, as well as meeting the wholesale
customers seasonal needs of their end-consumers.



The wholesale segments business is usually about three months earlier than Collective Brands other three segments.



The wholesale segment tends to have its highest inventory position around January to February and its lowest inventory position around the November
to December time frame.

PLG Retail

Retail seasonal sales volume for our Stride Rite childrens stores and outlet stores tends to be approximately
equivalent for the first half of the year versus the second half of the year.



The arrival of warm weather in the first half of the year is the biggest annual sales catalyst. Easter tends not to be as significant compared to
Payless.



In the second half of the year, back-to-school and the merchandise mix shift to boots are significant sales drivers.



PLG Retail tries to balance promotions evenly between the periods.

In their short history, Sperry Top-Sider stores have seen reasonably consistent seasonal sales patterns with notable
spikes around Christmas and Fathers Day.

Supply Chain

We run an integrated supply chain that supports the product life-cycle from concept to liquidation across all reporting
segments. In 2011, we sold approximately 160 million pairs of footwear through retail and wholesale combined.

We strive to get product to the right store at the right time and have product available for our wholesale customers at
the right time in order to drive sales and margin growth. We do this through the use of a variety of systems and models related to planning, forecasting, pricing, and allocations. This helps us align our promotions, product flow, and pricing with
customer shopping patterns.

We build and manage total inventory plans globally across multiple selling
channels. Assortments are targeted based on customer demand and planned with specific product lifecycles. We base our decisions on how to stock stores using several criteria:



For the Payless Domestic and Payless International segments, approximately 60%-65% of stores product portfolio is the same and we localize the
balance. We employ a variety of tools based on lifestyle, demographics, shopping behavior, and appetite for fashion to increasingly localize our products in stores.



We also consider seasonality and climate by geography which impacts the timing of our inventory distribution. We have sandal and boot zones to help
guide our product flow and pricing.



In addition, we use historical precedent of stores sales volumes and the categories of products they tend to sell.



We also account for footwear sizes in how to stock stores. In retail, we use a size assortment matrix tool when allocating inventory to reduce aged
product and markdowns in the least productive sizes.

All this is done to deliver
proportionately correct assortments. Our goal is to optimize product flow and freshness as we transition between selling periods. This is intended to drive sales and improve the profitability of those sales by reducing markdowns and aged inventory.

For Payless stores in North America, our goal is to optimize price throughout products lifecycles by
using tools which enable us to change pricing for every product at a store price cluster level. A store price cluster is a group of stores (usually about 125) with similar levels of price elasticity for a particular product.

Sourcing

Our design, product development, and sourcing functions come together in our global supply chain organization. We utilize agents, as well as internal product design and development capabilities, to drive
trend-right designs and improve speed to market of new products. Our Asia-based teams, responsible for product development and sourcing, perform several functions including sample creation and quality control. For strategic commodities and inputs
(e.g. outsoles, components), we negotiate directly with suppliers of raw materials and generally require our factories to use our preferred suppliers.

We procure products two different ways  through our direct sourcing organization or by engaging third party agents to assist in the procurement of products which we cannot or do not want to procure
ourselves. Over 72% of our footwear in 2011 was procured by our direct sourcing organization  65% for Payless and 96% for PLG. In 2011, we procured a higher percentage of our Payless products from third party agents versus the prior year in an
effort to utilize the agents more for additional product trend insights.

Our sourcing team is closely aligned
with our core factory base which serves the bulk of our manufacturing needs. We balance several considerations in allocating our workflow to factories such as: present and future capacity needs, costs, compliance with regulatory issues, and the
impact of product complexity. Thirty-two core factories accounted for 68% of Collective Brands footwear purchases. We have more than 100 other footwear factories with which we do a smaller amount of business.

Factories in China were a direct source of 82% of our footwear units in 2011 compared to 84% in 2010. We are diversifying
our manufacturing base not only between countries but also within China in order to reduce

costs. In 2011, we sourced 15% of our footwear from Vietnam and the remaining 3% from a variety of countries including Indonesia, Thailand, and western hemisphere countries. Products are
manufactured to meet our specifications and standards. We do not purchase seconds or overruns.

Logistics

We maintain a flexible and efficient global logistics network that enables speed to market while mitigating transportation costs. Our systems provide perpetual planning and forecasting solutions, support
multiple distribution centers, and provide information to allow us to optimize initial distribution planning and case pack configuration. During 2011, our days from order commitment-to-store (supply chain days) increased slightly versus
the prior year due to ongoing implementation of a sourcing diversification strategy which involves sourcing footwear from more remote locations. Our efforts to reduce product costs by sourcing more from outside China increased logistics distance and
complexity, which added to the supply chain days. This was partially offset by the impact of improved execution, process enhancements, and optimizing our physical distribution. To ensure product arrives at locations when our customers need it, we
commit earlier to assortments given the slight increase in supply chain days.

We target high-demand,
in-season product for accelerated delivery (rapid re-order) at both retail and wholesale. Through rapid re-order we attempt to maximize sales and margin on high-demand, proven items. Through rapid re-order, we reduce approximately three
weeks worth of supply chain days from certain product runs.

Stores generally receive new merchandise on
average twice a week from one of our pool points which are used to manage the flow-through of inventory from our distribution centers (DCs) to our stores in an effort to maintain a constant flow of fresh and replenished merchandise. We
currently use six DCs worldwide which are listed below along with their approximate size:

1.

We lease an 802,000 square foot DC in Brookville, Ohio which currently serves approximately 2,400 Payless stores in North America, all Stride Rite
stores, and Stride Rites U.S. wholesale business.

2.

We own a 520,000 square foot DC in Louisville, Kentucky which serves U.S. wholesale operations for Keds, Saucony, and Sperry Top-Sider. It also
serves Sperry retail stores.

3.

We lease a 414,000 square foot DC in Redlands, California which serves approximately 1,800 Payless stores in North America.

4.

We contract for 67,500 square feet of distribution space, together with contiguous showroom and office space, in Mississauga, Ontario which serves
our PLG Wholesale business in Canada.

5.

We lease a 94,000 square feet of distribution and showroom space in Heerhugowaard, The Netherlands to support our PLG operations in Europe.

6.

We contract with a third-party in Colon, Panama to operate a distribution facility for our Payless operations in Latin America.

We lease an 87,000 square feet of office space in multiple locations in China, Taiwan, and
Vietnam. The functions of our associates in these Asia locations are primarily related to sourcing, inspection, costing, and logistics.

Intellectual Property

Through our wholly-owned subsidiaries, we own certain copyrights, trademarks, patents and domain names which we use in our business and regard as valuable assets.

The trademarks and service marks used in our Payless business include Payless®, Payless ShoeSource®, and various logos used on our Payless ShoeSource store signs and in advertising, including our traditional yellow and orange signage and our orange and blue circle
P logos. The domain names include Payless.com®, as well as derivatives of Payless ShoeSource. We
also own and use the following trademarks and brands in Payless stores: Airwalk®, Above the Rim®, and Spot-Bilt®.

Currently, we have
agreements in place regarding the following brands:

Trademark

Licensor

Expires

Blues Clues, SpongeBob SquarePants, and Pro-Slime

MTV Networks, a division ofViacom International, Inc.

December 31, 2012

The Last
Airbender®

MTV Networks, a division ofViacom International, Inc.

December 31, 2012

Star Wars® and Star Wars: The
Clone Wars® properties

Lucasfilm Ltd.

December 31, 2012

American Ballet
Theatre

Ballet Theatre Foundation, Inc.

January 31, 2013

Superball®

Wham-o, Inc.

December 31, 2013

Various Disney characters and properties

Disney Enterprises, Inc.

December 31, 2013

Dexter®

HH Brown Shoe Company, Inc.

December 31, 2014

Champion®

HBI Branded Apparel Enterprises, LLC

June 30, 2015

American Eagle

American Eagle Outfitters

None

We have agreements for development, licensing, marketing and distribution regarding the
following designer brands:

Trademark

Designer

Expires

Silvia Tcherassi for
Payless

Silvia Tcherassi

September 1, 2012

Lela Rose for
Payless

Lela Rose

July 31, 2013

Unforgettable Moments by Lela
Rose

Lela Rose

July 31, 2013

Isabel Toledo for
Payless

Isabel Toledo

August 31, 2013

Christian Siriano for
Payless

Christian Siriano

December 31, 2013

The Silvia Tcherassi for Payless mark is used primarily in Latin America. Through
agents, Payless also utilizes various character marks from time-to-time.

Collective
Licensing markets trademarks outside of Payless stores including Above the Rim®, Airwalk®, Clinch Gear®, Dukes,
genetic®, Hind®, Lamar®, LTD®, Rage®, Skate Attack®,
Ultra-Wheels®, and Vision Street Wear®. We are also the exclusive agent for the Sims® brand mark.Collective Licensings focus is on the growing active sport lifestyle market driven predominantly by action sports and performance athletic
trends. It is positioned with its authentic brand portfolio to reach both the younger consumer with strong ties to board sports, as well as appeal to the broad range of consumers drawn to this established lifestyle and fashion.

PLG Retail and Wholesale

The trademarks and service marks used by our Performance + Lifestyle Group include Grasshoppers®, Keds®, Robeez®, Saucony®, Sperry Top-Sider®, and Stride Rite®. These
marks extend to the various logos, packaging, store signs, point-of-purchase displays, and other marketing contexts in which we use them. The domain names include grasshoppers.com, keds.com, robeez.com, saucony.com, sperrytopsider.com, and
striderite.com.

Through our Keds group, we license the Champion® name to Hanesbrands, Inc. for footwear. We also have other licensees of our Keds and Stride Rite marks.

We have entered into license agreements with various licensors, which are summarized in the following table:

Trademark

Licensor

Expires

Various Star Wars and Clone Wars characters and properties

Lucasfilm Ltd.

December 31, 2012

Various Disney® characters
and properties

Disney Consumer Products, Inc.

December 31, 2013

Superball®

Wham-o, Inc.

December 31, 2013

Jessica Simpson

VCJS, LLC

December 31, 2013

Hello Kitty

Sanrio, Inc.

December 31, 2013

Various Marvel characters and properties

Marvel Characters, BV

December 31, 2013

Various Sesame Street characters and properties

Seasame Workshop

June 30, 2014

Backlog

PLG Wholesale

Our backlog of orders as of
January 28, 2012 was approximately $354 million compared to approximately $343 million as of January 29, 2011. Of the January 28, 2012 backlog, the amount relating to orders for the first quarter of 2012 was $193 million. Of the
January 29, 2011 backlog, $191 million related to orders for the first quarter of 2011. The backlog of orders in the first quarter of 2012 reflects the anticipation of a greater mix of reorders versus future orders compared to the first quarter
of 2011 and, as such, we expect fewer cancellations in the first quarter of 2012 than we had in the first quarter of 2011. Due to the variability of the timing between future orders, reorders and cancellations, backlog does not necessarily translate
directly into net sales.

Environmental Liability

In connection with the acquisition of PLG, we acquired a property with a related environmental liability. The liability as
of January 28, 2012 was $0.5 million, $0.1 million of which was included as an accrued expense and $0.4 million of which was included in other long-term liabilities in the accompanying Consolidated Balance Sheet. The assessment of the liability
and the associated costs were based upon available information after consultation with environmental engineers, consultants and attorneys assisting the Company in addressing these environmental issues. As of January 28, 2012, the Company
estimated the total cost related to this environmental liability to be $6.3 million, including $5.8 million of costs that have already been paid. Actual costs to address the environmental conditions may change based upon further investigations, the
conclusions of regulatory authorities about information gathered in those investigations, the inherent uncertainties involved in estimating conditions in the environment, and the costs of addressing such conditions.

Available Information

We file or furnish our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 with the SEC electronically. Copies of any of these documents will be provided in print to any shareholder who submits a request in writing to Collective Brands, Inc., Attn: Investor Relations, 3231 Southeast Sixth
Avenue, Topeka KS 66607 or calls our Investor Relations Department at (785) 559-5321. The public may read or request a copy of any materials we file with the SEC at the Public Reference Room at 100 F Street N.E.,

Washington, D.C. 20549, on official business days during the hours of 10:00 a.m. and 3:00 p.m. The public may obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

We maintain an investor relations website at www.collectivebrands.com. On our investor relations website, one can
access free of charge our reports that are filed with the SEC, the Guidelines for our Board of Directors, and the charters for the Board of Directors, the Audit and Finance Committee and the Compensation, Nominating and Governance Committee. No
portion of our website or the information contained in or connected to the website is a part of, or incorporated into, this Annual Report on Form 10-K.

Directors of the Company

Listed below are the names and
present principal occupations or, if retired, most recent occupations of the Companys Directors:

Name

Principal Occupation

David Scott Olivet(1*)(2)(4)

Executive Chairman, RED Digital Cinema and Chairman, Oakley Inc.

Daniel Boggan Jr.(2)

Retired Senior Vice President of the National Collegiate Athletic Association

Listed below are the names and ages of the executive officers of the Company as of March 22, 2012 and offices held by
them with the Company.

Name

Age

Position and title

Michael J. Massey

47

Chief Executive Officer, President, General Counsel and Secretary

LuAnn Via

58

President and Chief Executive Officer  Payless ShoeSource, Inc.

Gregg S. Ribatt

43

President and Chief Executive Officer  Perfomance + Lifestyle Group

Bruce T. Pettet

47

President and Chief Executive Officer  Collective Licensing International

Darrel J. Pavelka

56

Executive Vice President  Global Supply Chain

Douglas J. Treff

54

Executive Vice President  Chief Administrative Officer

Betty J. Click

49

Senior Vice President  Human Resources

Douglas G. Boessen

49

Division Senior Vice President, Chief Financial Officer and Treasurer

Michael J. Massey is 47 years old and has served as Chief Executive Officer and
President since June 2011. He has served as Senior Vice President  General Counsel and Secretary since 2003. Prior to that, he served as Vice President of International Development from 2001 to 2003, Vice President of Contract Manufacturing
from 2000 to 2001, Vice President, Group Counsel Intellectual Property from 1998 to 2000, and Senior Counsel from 1996 to 1998. Prior to joining Collective Brands, Inc., Mr. Massey was an attorney for The May Department Stores Company from 1990
to 1996.

LuAnn Via is 58 years old and has served as President and Chief Executive Officer of Payless
since July 2008. Prior to joining the Company, she served as Group Divisional President of Charming Shoppes Lane Bryant and Cacique chains from June 2007 to July 2008 and served on the Charming Shoppes Group Executive Committee from
January 2006 to July 2008. From January 2006 to June 2007, she served as President of Charming Shoppes Catherine Stores. She worked at Sears, Roebuck and Company from 2003 to 2006, serving as Vice President and General Merchandising Manager
for the retailers footwear, accessories, fine jewelry and intimate apparel business. She served as Senior Vice President, General Merchandising Product Development from 1998 to 2003 at Saks, Inc. And from 1992 to 1998, she served as Executive
Vice President at Trade Am International. From 1990 to 1992, Ms. Via was Senior Vice President and General Merchandising Manager at The Shoe Box/The Shoe Gallery; and from 1985 to 1990 she served as Divisional Vice President and Merchandise
Manager for Accessories, as well as various other buying positions at the Richs Division of Federated Department Stores.

Gregg S. Ribatt is 43 years old and joined the Performance + Lifestyle Group of Collective Brands in January 2008 as President and Chief Executive Officer. Prior to that, he worked for Stuart
Weitzman Holdings, LLC as President and CEO. Prior to joining Stuart Weitzman, he worked for Bennett Footwear Group holding positions of increasing responsibility. Prior to the companys sale to Brown Shoe in 2005, he served as
Executive Vice President and Chief Operating Officer for Bennett. Mr. Ribatt holds a bachelor of arts from Wesleyan University and a masters of business administration from The University of Chicago.

Bruce T. Pettet is 47 years old and has served as the President and Chief Executive Officer of Collective
Licensing International, LLC since its founding in December 2003. He served as President and CEO of Airwalk International, LLC, from July 2000 through December 2003. Previous to Airwalk, he worked for Brooks Sports,

Inc., from 1995 to 2000, ultimately serving as the companys President and CEO. He also served as a principal/partner for eight years for a Southern California-based lifestyle and
performance brand sales agency, Performance Sales West. Mr. Pettet graduated from Pepperdine University with a B.S. in Management, received a certificate degree in Entrepreneurship from California State University  Fullerton, and
participated in Executive Education in Business Strategy at Dartmouth University.

Darrel J. Pavelka is
56 years old and has served as Executive Vice President  Global Supply Chain since September 2007. Prior to that, he served as Senior Vice President  Merchandise Distribution, Planning and Supply Chain from September 2004 to September
2007. He also served as Senior Vice President  International Operations and Supply Chain from March 2003 to September 2004, Senior Vice President  Merchandise Distribution from 1999 to 2003, Vice President of Retail Operations for
Division R from 1997 to 1999, Vice President of Stores Merchandising from 1995 to 1997, Director of Stores Merchandising from 1990 to 1995, Director of Distribution for Womens from 1987 to 1990, Manager of Stores Merchandising for Division R
from 1983 to 1987, and Manager of the Northeast store expansion from 1980 to 1983.

Douglas J. Treff is
54 years old and has served as the Companys Executive Vice President and Chief Administrative Officer since September 2007. Prior to joining the Company, he served as Executive Vice President and Chief Administrative Officer for Sears Canada,
Inc. from 2006 to 2007. From 2000 to 2006 he served as Senior Vice President and Chief Financial Officer for Deluxe Corporation and from 1990 to 2000, as Chief Financial Officer and other leadership roles in finance at Wilsons, The Leather Experts,
Inc.

Betty J. Click is 49 years old and has served as Senior Vice President  Human Resources for
Collective Brands, Inc. since July 2008. Prior to that, she served as Vice President, HR Operations and Learning and Development from December 2005 to August 2008 and as Vice President, HR Solutions from June 2002 to December 2005. Prior to joining
Collective Brands, Inc., she spent 21 years with Verizon Communications, Inc. (formerly GTE) and served in various positions of increasing responsibility to support the Companys evolution and expansion, including Vice President  Human
Resources Corporate Staff and Executive Director of Compensation Strategy.

Douglas G. Boessen is 49
years old and has served as Division Senior Vice President, Chief Financial Officer and Treasurer since December 2008. He previously served as Vice President, Corporate Controller from 2004 to 2008. From 2000 to 2004, he was Vice President,
Financial Planning and Analysis, from 1999 to 2000 he was Director  Strategic Planning and from 1997 to 1999 he served as Associate Controller for the Company. Prior to joining Payless, he served as Senior Manager at Arthur Andersen LLP.

ITEM 1A. RISK FACTORS

We May be Unable to Compete Effectively in the Competitive Worldwide Footwear Industry

We face a variety of competitive challenges from other domestic and international footwear retailers and wholesalers,
including a number of competitors that have substantially greater financial and marketing resources than we do. These competitors include mass-market discount retailers, department stores including, other footwear retailers and wholesalers. We
compete with these competitors on the basis of:



developing fashionable, high-quality merchandise in an assortment of sizes, colors and styles that appeals to our target consumers;



anticipating and responding to changing consumer demands in a timely manner;

Mass-market discount retailers aggressively compete with us on the basis of price and have added significant numbers of
locations. Accordingly, there is substantial pressure on us to maintain the value proposition of our footwear and the convenience of our store locations. In addition, it is possible that mass-market discount retailers will increase their investment
in their retail footwear operations, thereby achieving greater market penetration and placing additional competitive pressures on our business. If we are unable to respond effectively to these competitive pressures, our business, results of
operations and financial condition could be adversely affected.

The Worldwide Footwear Industry is Heavily Influenced by General Economic
Cycles Including Commodity and Labor Prices

Footwear is a cyclical industry that is heavily dependent upon
the overall level of consumer spending. Purchases of footwear and related goods tend to be highly correlated with the cycles of the levels of disposable income of our consumers. As a result, any substantial deterioration in general economic
conditions could adversely affect our business. Further, the profitability of our industry is dependent on the prices of commodities used to make and transport our products (including cotton, rubber, petroleum, etc.) as well as labor prices. If we
are unable to mitigate the impact of the deterioration of general economic conditions and the impact of higher commodity and labor prices, our results of operations and financial condition would be materially adversely affected.

A Majority of our Operating Expenses are Fixed Costs that are not Directly Dependent Upon our Sales Performance

A majority of our operating expenses are fixed costs that are not directly dependent on our sales performance. These fixed
costs include the leasing costs of our stores, our debt service expenses and, because stores require minimum staffing levels, the majority of our labor expenses. If our sales decline, we may be unable to reduce or offset these fixed operating
expenses in the short term. Accordingly, the effect of any sales decline is magnified because a larger percentage of our earnings are committed to paying these fixed costs. As a result, our net earnings and cash flow would be disproportionately
affected negatively as a result of a decline in sales.

We May be Unable to Maintain or Increase our Sales Volume and Profitability

Our Payless stores have a substantial market presence in the United States and we currently derive a
significant majority of our revenue from our U.S. stores. Our PLG retail stores and our PLG wholesale businesses also derive a significant majority of their revenue from U.S. sources. Because of our substantial market presence, because the U.S.
footwear retailing industry is mature and because our domestic store count is decreasing, for us to increase our domestic sales volume on a unit basis, we must capture market share from our competitors. We have attempted to capture additional market
share through a variety of strategies; however, if we are not successful we may be unable to increase or maintain our sales volumes and profitability in the United States, adversely affecting our business, results of operations and financial
condition.

Our Payless Domestic and Payless International Reporting Segments are Heavily Influenced by the Economic
Condition of our Core Customer Base

Our Payless Domestic and Payless International reporting segments are
highly dependent on the disposable income of our core customer base. High unemployment and rising prices for staple products like gasoline and food are factors that have a particularly negative impact on the disposable income of our core customer
base. If the economic condition of certain segments of our core customer base does not improve, our financial results may be negatively impacted. Also, any deterioration in the general economic conditions for our core customer base could adversely
affect our results of operations and financial condition.

We increase our inventory levels to support the increased demand for our products, as well as to offer styles particularly
suited for the relevant season, such as sandals in the early summer season and boots during the winter season. If the weather conditions for a particular season vary significantly from those typical for such season, such as an unusually cold early
summer or an unusually warm winter, consumer demand for the seasonally appropriate merchandise that we have available in our stores could be adversely affected and negatively impact net sales and margins. Lower demand for seasonally appropriate
merchandise may leave us with an excess inventory of our seasonally appropriate products, forcing us to sell these products at significantly discounted prices and adversely affecting our net sales margins and operating cash flow. Conversely, if
weather conditions permit us to sell our seasonal product early in the season, this may reduce inventory levels needed to meet our customers needs later in that same season. Consequently, our results of operations are highly dependent on
somewhat predictable weather conditions and our ability to react to changes in weather conditions.

We May be Unable to Adjust to
Constantly Changing Fashion Trends

Our success depends, in large part, upon our ability to gauge the
evolving fashion tastes of our consumers and to provide merchandise that satisfies such fashion tastes in a timely manner. The worldwide footwear industry fluctuates according to changing fashion tastes and seasons, and merchandise usually must be
ordered well in advance of the season, frequently before consumer fashion tastes are evidenced by consumer purchases. In addition, the cyclical nature of the worldwide footwear industry also requires us to maintain substantial levels of inventory,
especially prior to peak selling seasons when we build up our inventory levels. As a result, if we fail to properly gauge the fashion tastes of consumers, or to respond in a timely manner, this failure could adversely affect consumer acceptance of
our merchandise and leave us with substantial unsold inventory. If that occurs, we may be forced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which would negatively impact financial results.

The results of our wholesale businesses are affected by the buying plans of our customers, which include large department
stores and smaller retailers. No customer accounts for 10% or more of our wholesale business. Our wholesale customers may not inform us of changes in their buying plans until it is too late for us to make the necessary adjustments to our product
lines and marketing strategies. While we believe that purchasing decisions in many cases are made independently by individual stores or store chains, we are exposed to decisions by the controlling owner of a store chain that could decrease the
amount of footwear products purchased from us. In addition, the retail industry periodically experiences consolidation. We face a risk that our wholesale customers may consolidate, restructure, reorganize, file for bankruptcy or otherwise realign in
ways that could decrease the number of stores or the amount of shelf space that carry our products. We also face a risk that our wholesale customers could develop in-house brands or utilize the private labeling of footwear products, which would
negatively impact financial results.

We May be Unsuccessful in Opening New Stores, Including Stores Operated by Franchise
Partners, or Relocating Existing Stores to New Locations, Adversely Affecting our Ability to Grow

Our
growth, in part, is dependent upon our ability to expand our retail operations by opening new stores, as well as relocating existing stores to new locations and extending our expiring leases, on a profitable basis.

Our ability to open new stores and relocate existing stores to new locations on a timely and profitable basis is subject
to various contingencies, some of which are beyond our control. These contingencies include our ability to:

In addition, the opening of stores outside of the United States is subject to a number of additional contingencies,
including compliance with local laws and regulations and cultural issues. Also, because we operate a number of our international stores under joint ventures, issues may arise in our dealings with our joint venture partners or their compliance with
the joint venture agreements.

We may be unsuccessful in opening new stores or relocating existing stores for
any of these reasons. In addition, we cannot be assured that, even if we are successful in opening new stores or relocating existing stores, those stores will achieve levels of sales and profitability comparable to our existing stores.

We Rely on Third Parties to Manufacture and Distribute Our Products

We depend on third party manufacturers to manufacture the merchandise that we sell. If these manufacturers are unable to
secure sufficient supplies of raw materials, produce products that meet our quality standards or maintain adequate manufacturing and shipping capacity, they may be unable to provide us with timely delivery of products. In addition, if the prices
charged by these third parties increase for reasons such as increases in the price of raw materials, increases in labor costs or currency fluctuations, our cost of manufacturing would increase, adversely affecting our results of operations. We also
depend on third parties to transport and deliver our products. Due to the fact that we do not have any independent transportation or delivery capabilities of our own, if these third parties are unable to transport or deliver our products for any
reason, or if they increase the price of their services, our operations and financial performance would be adversely affected.

We require our third party manufacturers to meet our standards in terms of working conditions and other matters before we are willing to contract with them to manufacture our merchandise. As a result, we
may not be able to obtain the lowest possible manufacturing costs. In addition, any failure by our manufacturers to meet these standards, to adhere to labor or other laws or to diverge from our mandated labor practices, and the potential negative
publicity relating to any of these events, could harm our business and reputation.

We do not have long-term
agreements with any of our third party manufacturers, and any of these manufacturers may unilaterally terminate their relationship with us at any time. There is also substantial competition among footwear retailers for quality manufacturers. To the
extent we are unable to secure or maintain relationships with quality manufacturers, our business could be harmed.

There are Risks
Associated with Our Importation of Products

We import finished merchandise into the United States and
other countries in which we operate from the Peoples Republic of China and other countries. Substantially all of this imported merchandise is subject to:



customs, duties and tariffs imposed by the governments of countries into which this merchandise is imported; and

The United States and countries in which our merchandise is manufactured or imported may
from time to time impose additional new quotas, tariffs, duties or other restrictions on our merchandise or adversely change

existing restrictions or interpretations. These additional taxes and regulations could adversely affect our ability to import, and/or the cost of our products which could have a material adverse
impact on the results of operations of our business.

Manufacturers in China are our major suppliers. During
2011, China was a direct source of approximately 82% of our merchandise based on cost. In addition to the products we import directly, a significant amount of the products we purchase from other suppliers has been imported from China. Any
deterioration in the trade relationship between the United States and China or any other disruption in our ability to import footwear, accessories, or other products from China or any other country where we have stores could have a material adverse
effect on our business, financial condition or results of operations.

In addition to the risks of foreign
sourcing stemming from international trade laws, there are also operational risks of relying on such imported merchandise. Our ability to successfully import merchandise derived from foreign sources into the United States is dependent on stable
labor conditions in the major ports we utilize to import or export product. Any instability or deterioration of the labor environment in these ports, such as the work stoppage at West Coast ports in 2002, could result in increased costs, delays or
disruption in product deliveries that could cause loss of revenue, damage to customer relationships or materially affect our business.

If we are unable to maintain our current Customs-Trade Partnership Against Terrorism (C-TPAT) status, it would increase the time it takes to get products into our stores. Such delays could
materially impact our ability to move the current product in our stores to meet customer demand.

Our International Operations are Subject
to Political and Economic Risks

In 2011, 18% of our sales were generated outside the United States and
almost all of our merchandise was manufactured outside the United States. We are accordingly subject to a number of risks relating to doing business internationally, any of which could significantly harm our business, including:



political and economic instability;



inflation;



quotas;



regulation of importation of goods from certain countries;



exchange controls and currency exchange rates;



foreign tax treaties and policies;



restrictions on the transfer of funds to and from foreign countries;



ability to import product; and



increase in duty rates

Certain countries have increased or are considering increases to duty rates. If the Company is unable to mitigate the impact of these increased duty rates or any other costs, it would adversely impact the
profitability of our foreign operations which would adversely impact our financial position and results of operations.

Our financial performance on a U.S. dollar denominated basis is also subject to fluctuations in currency exchange rates. These fluctuations could cause our results of operations to vary materially.

From time to time, we may enter into agreements seeking to reduce the effects of our exposure to currency
fluctuations, but these agreements may not be effective in reducing our exposure to currency fluctuations or may not be available at a cost effective price.

We May be Unable to Effectively Protect Our Trademarks and Other Intellectual Property Rights

We believe that our trademarks and other intellectual property are important to our business and are
generally sufficient to permit us to carry on our business as presently conducted. We cannot, however, know whether we will be able to secure patents or trademark protection for our intellectual property in the future or whether that protection will
be adequate for future products. Further, we face the risk of ineffective protection of intellectual property rights in the countries where we source and distribute our products. If we are compelled to prosecute infringing parties or defend our
intellectual property, we will incur additional costs. Costs associated with the defense of our intellectual property could be substantial and occupy a significant amount of management time and resources. These costs could negatively impact our
results of operations and financial condition.

Adverse Changes in Our Results of Operations and Financial Position Could Impact Our
Ability to Meet Our Debt Covenants

We are subject to financial covenants under our Term Loan Facility,
Revolving Credit Facility and our Senior Subordinated Notes (collectively, the Credit Facilities). These financial covenants are based largely on our results of operations and financial position. In the event of adverse changes in our
results of operations or financial position, including those resulting from changes in generally accepted accounting principles, we may be unable to comply with the financial covenants contained in our Credit Facilities in which case we would be in
default. To avoid a default, we may seek an amendment that would likely involve up-front costs, increased interest rate margins and additional covenants. If we were unable to negotiate an amendment of our Credit Facilities and defaulted on them we
could be required to make immediate repayment. A default could also trigger increases in interest rates and difficulty obtaining other sources of financing. Such an event would adversely impact our financial position and results of operations.

We May be Subject to Liability if We Infringe the Trademarks or Other Intellectual Property Rights of Third Parties

We may be subject to liability if we infringe the trademarks or other intellectual property rights of third parties. If we
were to be found liable for any such infringement, we could be required to pay substantial damages and could be subject to injunctions preventing further infringement. Litigation could occupy a significant amount of management time and resources.
Further, large verdicts and judgments against us may increase our exposure to legal claims in the future. Such payments and injunctions could materially adversely affect our financial results.

We Rely on Brands We Do Not Own

As discussed in Item 1 of this Form 10-K under the caption Intellectual Property, we license trademarks and brands through various agreements with third parties. We, through our agents,
also utilize various character marks from time-to-time. If we are unable to renew or replace any trademark, brand or character mark that accounts for a significant portion of our revenue, our results could be adversely affected.

Adverse Occurrences at Our Distribution Centers or the Ports We Use Could Negatively Impact Our Business

We currently use six distribution centers, which serve as the source of replenishment of inventory for our stores and
serve our wholesale operations. If complications arise with any of our operating distribution centers or our distribution centers are severely damaged or destroyed, our other distribution centers may not be able to support the resulting additional
distribution demands and we may be unable to locate alternative persons or entities capable of doing so. This may adversely affect our ability to deliver inventory on a timely basis, which could adversely affect our results of operations.

Our Senior Subordinated Notes are due on August 1, 2013, our Term Loan Facility matures on August 17, 2014 and
our Amended Revolving Loan Facility matures on August 16, 2016. In the event we need additional financing, or we need to refinance our current debt, there can be no assurances that these funds will be available on a timely basis or on
reasonable terms. Failure to obtain such financing could constrain our ability to operate or grow the business. In addition, any ratings downgrade of our securities, or any negative impacts on the credit market, generally, could negatively impact
the cost or availability of capital.

There are Risks Associated with Our Acquisitions

Any acquisitions or mergers by us will be accompanied by the risks commonly encountered in acquisitions of companies.
These risks include, among other things, higher than anticipated acquisition costs and expenses, the difficulty and expense of integrating the operations and personnel of the companies and the loss of key employees and customers as a result of
changes in management.

In addition, geographic distances may make integration of acquired businesses more
difficult. We may not be successful in overcoming these risks or any other problems encountered in connection with any acquisitions.

Our acquisitions may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges in the future. We also make certain estimates and
assumptions in order to determine purchase price allocation and estimate the fair value of acquired assets and liabilities. If our estimates or assumptions used to value acquired assets and liabilities are not accurate, we may be exposed to losses
that may be material.

Adverse Changes in our Market Capitalization or Anticipated Future Operating Performance May be an Indication of
Goodwill or Other Intangible Asset Impairment, Which Could Have a Material Impact on our Financial Position and Results of Operations

We assess goodwill, which is not subject to amortization, for impairment on an annual basis or at any other interim reporting date when events or changes in circumstances indicate that the book value of
these assets may exceed their fair value. We develop an estimate of the fair value of each reporting unit using both a market approach and an income approach. A significant adverse change in our market capitalization or anticipated future operating
performance could result in the book value of a reporting unit exceeding its fair value, resulting in a goodwill impairment charge, which could adversely impact our financial position and results of operations.

We also assess certain finite and indefinite lived intangible assets for impairment on an annual basis or at any other
interim reporting date when events or changes in circumstances indicate that the book value of these assets may exceed their fair value. Any significant changes in our anticipated future operating performance may be an indication of impairment to
our trademarks or any other intangible asset. Any such impairment charges, if significant, would adversely impact our financial position and results of operations.

The Operation of our Business is Dependent on our Information Systems

We depend on a variety of information technology systems for the efficient functioning of our business and security of our information and certain information of our customers. Our inability to continue
to maintain and upgrade these information systems or to meet changing data security and privacy standards could disrupt or reduce the efficiency of our operations or result in fines or litigation. In addition, potential problems with the
implementation of new or upgraded systems as our business grows or with maintenance of existing systems could also disrupt or reduce the efficiency of our operations.

Failure to Maintain the Security of Personally Identifiable and Other Information of our Customers,
Stockholders and Employees Could Negatively Impact Our Business

In connection with our business, we
collect and retain significant volumes of certain types of personally identifiable and other information pertaining to our customers, stockholders and employees. Theft, loss, fraudulent use or misuse of customer, stockholder, employee or our other
data by cybercrime or otherwise, could adversely impact our reputation and could result in significant costs, fines, litigation or regulatory action against us.

An Outbreak of Infectious Diseases May Have a Material Adverse Effect on Our Ability to Purchase Merchandise from Manufacturers and Our Operations

An outbreak and spread of infectious diseases in countries in which our manufacturers are located could impact the
availability or timely delivery of merchandise. Although our ability to purchase and import our merchandise has not been negatively impacted to date, an outbreak of infectious diseases could prevent the manufacturers we use from manufacturing our
merchandise or hinder our ability to import those goods to the countries in which our stores are located, either of which could have an adverse effect on our results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Collective Brands uses six distribution facilities worldwide, which are listed below along with their approximate size:

1.

We lease an 802,000 square foot Distribution Center (DC) in Brookville, Ohio which currently serves approximately 2,400 Payless stores
in North America, all Stride Rite stores, and PLGs U.S. wholesale business.

2.

We own a 520,000 square foot DC in Louisville, Kentucky which serves U.S. wholesale operations for Keds, Saucony, and Sperry Top-Sider. It also
serves Sperry retail stores.

3.

We lease a 414,000 square foot DC in Redlands, California which serves approximately 1,800 Payless stores in North America.

4.

We contract for 67,500 square feet of distribution space, together with contiguous showroom and office space, in Mississauga, Ontario which serves
our PLG Wholesale business in Canada.

5.

We lease a 94,000 square feet of distribution and showroom space in Heerhugowaard, The Netherlands to support our PLG operations in Europe.

6.

We contract with a third-party in Colon, Panama to operate a distribution facility for our Payless operations in Latin America.

We lease an 87,000 square feet of office space in multiple locations in China, Taiwan, and
Vietnam. The functions of our associates in these Asia locations are primarily related to sourcing, inspection, costing, and logistics.

Retail Properties

The total square footage for our retail stores as of January 28, 2012, January 29, 2011 and January 30, 2010 was approximately 13.5 million, 14.6 million and
14.6 million, respectively. These square footage numbers do not include our franchised stores.

We lease substantially all of our Payless stores. Leases on new or relocated stores typically have initial terms of five
or ten years and either one or two renewal options. Renewals on existing stores are, on average, approximately three years. This is because we have negotiated significant occupancy cost reductions with shorter terms on many of our stores.

During 2012, approximately 800 of our leases are due to expire. In addition, approximately 300 leases as of
January 28, 2012 were month-to-month tenancies. Of all the roughly 1,100 expiring or month-to-month leases, approximately 200 have modifications that are pending execution. Leases usually require payment of base rent, applicable real estate
taxes, common area expenses and, in some cases, percentage rent based on the stores sales volume.

In
addition to our stores, we own a 290,000 square foot headquarters building in Topeka, Kansas. We lease approximately 10,000 square feet of office space in New York, N.Y. for our design center. We also lease 6,300 square feet of office space for our
Collective Licensing headquarters in Englewood, Colorado. We lease office space totaling nearly 19,000 square feet in Latin America and another 3,800 square feet in Canada.

PLG Retail and PLG Wholesale

We lease all of our PLG
stores. Our leases typically have an initial term of up to ten years and may include a renewal option. Leases usually require payment of base rent, applicable real estate taxes, common area expenses and, in some cases, percentage rent based on the
stores sales volume and merchants association fees.

We lease approximately 148,000 square feet of
office space at our PLG headquarters building in Lexington, Massachusetts. We also lease approximately 24,000 square feet of call center space in Richmond, Indiana. We lease showroom space to conduct business with wholesale customers, the trade, and
media in New York and London totaling 10,000 and 2,600 square feet, respectively.

ITEM 3. LEGAL PROCEEDINGS

There are no pending legal proceedings other than ordinary, routine litigation incidental to the business to which the
Company is a party or of which its property is subject, none of which the Company expects to have a material impact on its financial position, results of operations and cash flows.

The Companys common stock is listed on the New York Stock Exchange under the trading symbol PSS. The quarterly
intraday price ranges of the common stock in 2011 and 2010 were:

2011

2010

Fiscal Quarter

High

Low

High

Low

First

$

23.96

$

19.17

$

26.65

$

18.54

Second

21.11

11.65

24.37

14.99

Third

15.60

9.11

17.69

12.41

Fourth

16.78

11.38

21.90

15.07

Year

$

23.96

$

9.11

$

26.65

$

12.41

Since becoming a public company in 1996, we have not paid a cash dividend on outstanding
shares of common stock. We are subject to certain restrictions contained in our senior secured revolving loan facility, the indenture governing our 8.25% senior subordinated notes and our term loan which restrict our ability to pay dividends. We do
not currently plan to pay any dividends.

Recent Sales of Unregistered Securities

On May 26, 2011, May 27, 2010 and May 21, 2009, 19,644 shares, 22,300 shares and 37,937 shares,
respectively, were credited to an account under the Companys Restricted Stock Plan for Non-Management Directors as the annual restricted stock grant portion of their directors fees. In addition, Mr. Olivet received 5,226 shares on
June 17, 2011. Each director is permitted to defer receipt of a portion of their compensation including their annual restricted stock grant pursuant to the Companys Deferred Compensation Plan for Non-Management Directors. In the past
three years, non-management directors have deferred an aggregate of 71,493 shares under the Deferred Compensation Plan for Non-Management Directors. These grants were made as partial compensation for the recipients services as directors. The
offer and issuance of these securities are exempt from registration under Section 4(2) of the Securities Act of 1933 and the rules and regulations promulgated thereunder, as transactions by an issuer not involving any public offering or
alternatively, registration of such shares was not required because their issuance did not involve a sale under Section 2(3) of the Securities Act of 1933.

Issuer Purchases of Equity Securities

The following table
provides information about purchases by the Company (and its affiliated purchasers) of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act, during the quarter ended January 28, 2012:

Period

Total Numberof SharesPurchased(1)

AveragePricePaid perShare

Total Number
ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs

Approximate DollarValue of
Sharesthat May Yet BePurchased Under thePlans or Programs

(in thousands)

(in thousands)

(in millions)

10/30/11  11/26/11

4

$

15.05



$

124.0

11/27/11  12/31/11

6

14.11



$

124.0

01/01/12  01/28/12

5

14.26



$

124.0

Total

15

$

14.29



$

124.0

(2)

(1)

Includes an aggregate of approximately 15 thousand shares of our common stock that was repurchased in connection with our employee stock
purchase and stock incentive plans.

(2)

On March 2, 2007, our Board of Directors authorized an aggregate of $250 million of share repurchases. The timing and amount of share
repurchases, if any, are limited by the terms of our Credit Agreement and Senior Subordinated Notes.

The graph below compares the cumulative total stockholder return on Collective Brands, Inc.
Common Stock against the cumulative returns of the Standard and Poors Corporation Composite Index (the S&P 500 Index), the New Peer Group and the Old Peer Group. The graph assumes $100 was invested on February 3, 2007,
(the end of fiscal 2006) in Collective Brands, Inc. Common Stock, in the S&P 500 Index, the New Peer Group and the Old Peer Group and assumes the reinvestment of dividends.

Our summary consolidated financial information set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and
our Notes to Consolidated Financial Statements, included elsewhere in this Form 10-K.

Beginning in 2007, results include the effects of the acquisitions of PLG (acquired August 17, 2007) and Collective Licensing, Inc. (acquired
March 30, 2007) as of the date of those acquisitions.

(3)

In the fourth quarter of 2008, we recorded charges of $88.2 million related to the impairment of trademarks. In the second quarter of 2011 we
recorded charges of $31.1 million related to the impairment of trademarks.

(4)

During 2007, 2008, 2009, 2010 and 2011 we repurchased $48.4 million (2.4 million shares), $1.9 million (153 thousand shares), $7.6 million (389
thousand shares), $63.9 million (3.8 million shares), and $18.7 million (1.2 million shares) respectively, of common stock under our stock repurchase programs and in connection with our employee stock purchase, deferred compensation and stock
incentive plans.

(5)

Same-store sales are presented on a 52 week fiscal basis for all years. Same-store sales are calculated on a weekly basis and exclude third-party
liquidation sales. Generally, if a store is open the entire week in each of the last two years being compared, its sales are included in the same-store sales calculation for the week. Our Payless and Stride Rite childrens e-commerce businesses
are considered stores in this calculation. PLG stores are included in the same-store sales calculation starting in fiscal year 2009.

(6)

The Company believes return on equity and return on net assets provide useful information regarding its profitability, financial condition and
results of operations.

(7)

The Company uses return on invested capital as a means to measure its efficiency at allocating capital under its control toward profitable
investments and the metric is a component of the long-term cash incentive award calculation for certain senior executives.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) is intended to help the reader understand Collective Brands, Inc., our operations and our present business environment. MD&A is provided as a supplement to  and should be read in connection with  our
Consolidated Financial Statements and the accompanying notes thereto contained in Item 8 of this report. MD&A includes the following sections:



Our Business  a brief description of our business and key 2011 events.



Consolidated Review of Operations  an analysis of our consolidated results of operations for the three years presented in our Consolidated
Financial Statements.



Reporting Segment Review of Operations  an analysis of our results of operations for the three years presented in our Consolidated Financial
Statements for our four reporting segments: Payless Domestic, Payless International, PLG Wholesale and PLG Retail.

Critical Accounting Policies  a discussion of our critical accounting policies that involve a higher degree of judgment or complexity. This
section also includes the impact of new accounting standards.

Our Business

Collective Brands, Inc. consists of three lines of business: Payless ShoeSource (Payless),
Collective Brands Performance + Lifestyle Group (PLG), and Collective Licensing. We operate a portfolio of brands through multiple selling channels including retail, wholesale, licensing and franchising. Payless is one of the
worlds largest footwear retailers and is dedicated to providing incredible values of on-trend and validated styles of footwear and accessories. PLG markets products at wholesale and retail for children and adults under brand names that include
Saucony®, Sperry Top-Sider®, Stride Rite® and Keds®. Collective Licensing is a youth lifestyle marketing and global licensing business within the Payless Domestic
segment.

In 2011, weak retail sales in Payless Domestic, particularly in the first three quarters of the year, drove down our overall results. Sales in our Payless Domestic segment decreased $86.4 million from
2010. At the same time, we had continued strong sales in our PLG Wholesale segment. In order to improve our Payless business, we initiated a strategic redirection based on a comprehensive and analytical review. While we have served, and will
continue to serve, a wide array of customers, the cornerstone of the strategy is to re-engage with, and re-capture, budget conscious customers who have historically made up the largest portion of the Payless customer base. Beginning in the second
half of 2011, we made meaningful changes to the Payless pricing and messaging to increase our relevance and reconnect with these customers.

Higher footwear product costs on like-products also negatively impacted our financial performance. The increase in like-product costs in 2011 was driven by higher commodity and labor costs that impacted
all of our reporting segments. We expect like-product cost increases to continue in 2012. First quarter like-product costs are expected to increase a high-single digit percentage and second quarter increases are expected to be mid-single digits.

Several significant pre-tax charges also negatively impacted our results in
2011. These charges are summarized in the following table by location on the Consolidated Statement of (Loss) Earnings and by reporting segment:

Location on ConsolidatedStatement of
(Loss)

Earnings

PaylessDomestic

PaylessInternational

PLGRetail

PLGWholesale

Total

(in millions)

Q2 2011 increase in impairment of tangible assets

Cost of sales

$

26.2

$

2.5

$

3.1

$

0.7

$

32.5

Impairment of trademarks

Cost of sales

7.6





23.5

31.1

Impairment of goodwill

Impairment of goodwill

10.0







10.0

CEO severance

SG&A

10.0







10.0

Lease termination costs

Cost of sales

9.3

0.5

0.8



10.6

Severance costs related to store closings

SG&A

2.0

0.3

0.1



2.4

Impact of third-party store liquidations1

1.6

0.1





1.7

Strategic review expenses

SG&A

3.4



0.4



3.8

Total

$

70.1

$

3.4

$

4.4

$

24.2

$

102.1

1

The impact of third-party store liquidations represents the impact on operating loss and impacts gross margin and SG&A on the Consolidated
Statement of (Loss) Earnings.

The 2011 charges described in the table above represent the
following:



Q2 2011 increase in impairment of tangible assets: Due to a decline in our retail businesses, we recorded a $34.1
million non-cash tangible asset impairment charge in the second quarter of 2011. This charge represented a $32.5 million increase from the charge we recorded in the second quarter of 2010.



Impairment of trademarks and impairment of goodwill: As a result of the decline in performance of our domestic retail
businesses, we revised our financial projections related to certain trademarks and reporting units in the second quarter of 2011. These revisions indicated a potential impairment of our goodwill and intangible assets and, as such, we assessed the
fair value of these items to determine if their book value exceeded their fair value. As a result of this assessment, we determined that the book value of certain indefinite-lived trademarks and goodwill exceeded their fair value and we recognized
$31.1 million of pre-tax impairment charges for our indefinite-lived trademarks and $10.0 million of pre-tax impairment charges for goodwill in 2011.



CEO severance: We recorded severance charges of $10.0 million related to the departure of our former Chief Executive
Officer. These charges included a one-time cash payment of $6.8 million and the acceleration of share-based compensation expense related to outstanding awards of $3.2 million.



Lease termination costs, severance related to store closings and impact of third party store liquidations: In 2011 we
announced that, as part of our efforts to optimize the performance of our Payless and Stride Rite store fleet, we would close approximately 475 under-performing and low-volume, non-strategic stores over the next three years with approximately 350 of
those closings coming in 2011. We closed 298 Payless stores in 2011 in the U.S., Canada and Puerto Rico and 54 Stride Rite Childrens locations. We took these actions to optimize the profitability of markets by removing many low sales volume
stores that were cash flow negative or slightly positive but could not support the assortments and staffing that we believe our stores should offer. In fiscal 2010, the stores closed this year had sales of approximately $125 million. Once all of the
approximately 475 stores are closed, we anticipate an annual improvement in operating profit between $18 million and $22 million including the benefit of estimated sales transfer to remaining locations from closed stores.

Costs associated with this plan, which consist of lease termination costs, employee termination costs, and
other exit costs, will be recorded at fair value when they are incurred. We estimate these costs will total

$20 million to $25 million of which $13.0 million was recorded in 2011; however, the ultimate financial impact of this plan is dependent upon the actual exit transactions. In 2011, we recorded
$10.6 million of lease termination costs and $2.4 million of severance costs as part of this plan. Approximately 250 stores were operated by a third-party store liquidator as they closed. These third-party liquidation stores contributed $1.7 million
to our operating loss for the year.



Strategic review expenses: Our Board of Directors, together with management, is conducting a review of strategic and
financial alternatives to further enhance shareholder value. We have recorded $3.8 million of pre-tax expenses associated with this strategic review.

In addition to the pre-tax adjustments described above, we also recognized a valuation allowance on domestic deferred tax
assets that increased our provision for income taxes by $134.5 million in 2011.

Consolidated Review of Operations

The following discussion summarizes the significant factors affecting consolidated operating results for the fiscal years
ended January 28, 2012 (2011), January 29, 2011 (2010), and January 30, 2010 (2009). Each year contains 52 weeks of operating results. References to years relate to fiscal years rather than calendar years unless otherwise designated.
Results for the past three years were as follows:

Return on net assets is computed as net (loss) earnings from continuing operations before income taxes plus discontinued operations, plus the loss
on early extinguishment of debt, plus net interest expense and the interest component of operating leases, divided by beginning of year net assets, including present value of operating leases. We believe that return on net assets provides useful
information regarding our profitability, financial condition and results of operations.

(4)

Return on
invested capital is computed as operating (loss) profit from continuing operations, adjusted for income taxes at the applicable effective rate, divided by the average amount of long-term debt and shareowners equity. We use return on invested
capital as a means to measure our efficiency at allocating capital under our control toward profitable investments. The metric is also a component of the long-term cash incentive award calculation for certain senior executives.

Net sales at our retail stores are recognized at the time the sale is made to the customer. Net sales for wholesale and e-commerce transactions are recognized when title passes and the risks or rewards of
ownership have transferred to the customer, based on the shipping terms. All sales are net of estimated returns and promotional discounts and exclude sales tax.

With the exception of total net sales, the table below summarizes net sales information for our retail stores for each of
the last three fiscal years. Stores operated under franchise agreements are excluded from these calculations. Same-store sales are calculated on a weekly basis and exclude stores that closed with the services of a third-party liquidator. Generally,
if a store is open the entire week in each of the last two years being compared, its sales are included in the same-store sales calculation for the week. Our Payless and Stride Rite childrens e-commerce net sales are included in the same-store
sales calculation.

Please refer to the Reporting Segment Review of Operations
section for the details of the changes in net sales for each of our reporting units.

Cost of Sales

Cost of sales includes cost of merchandise sold and our buying, occupancy, warehousing and product movement costs, as well
as depreciation of stores and distribution centers, net intellectual property litigation costs, tangible asset impairment charges, impairment of trademarks and lease termination costs.

Cost of sales was $2,432.2 million for 2011, up 11.9% from $2,174.5 million in 2010. The increase in cost of sales from
2010 to 2011 is primarily due to the impact of tangible and intangible asset impairment charges, lease termination costs, higher product costs and a greater mix of wholesale products, which have a higher cost of sales than our retail products.

Cost of sales was $2,174.5 million for 2010, up 0.4% from $2,166.9 million in 2009. The increase in cost of
sales from 2009 to 2010 is primarily due to the impact of higher sales, offset by lower product costs in the first half of the year and lower occupancy costs in 2010 compared to 2009. Product costs were flat in the third quarter of 2010 compared to
the third quarter 2009 and were higher in the fourth quarter of 2010 compared to the fourth quarter of 2009.

Gross margin rate for 2010 was 35.6% compared to a gross margin rate of 34.5% for 2009. The increase in gross margin rate
is primarily due to lower product costs in the first half of the year and lower occupancy costs. Product costs were flat in the third quarter of 2010 compared to the third quarter 2009 and were higher in the fourth quarter of 2010 compared to the
fourth quarter of 2009.

Selling, General and Administrative Expenses

In 2011, selling, general and administrative expenses were $1,046.3 million, an increase of 3.4% from $1,011.5
million in the 2010 period. Selling, general and administrative expenses as a percentage of net sales were 30.2% in 2011 compared with 30.0% in 2010. The increase in SG&A expenses in 2011 compared to 2010 is primarily due to the impact of the
severance costs of $12.4 million and continued marketing investments in the PLG Wholesale and Payless Domestic reporting segments, partially offset by the impact of lower compensation-related expenses.

In 2010, selling, general and administrative expenses were $1,011.5 million, an increase of 3.0% from $982.4 million
in the 2009 period. Selling, general and administrative expenses as a percentage of net sales were 30.0% in 2010 compared with 29.7% in 2009. The increase of 0.3% as a percentage of net sales is primarily due to greater brand-building investments
across the business to support wholesale and international expansion, as well as increases in payroll and related costs to facilitate the growth of our PLG business.

Impairment of Goodwill

We assess goodwill for
impairment annually and at any other date when events or changes in circumstances indicate that the book value of these assets may exceed their fair value. This assessment is performed at a reporting unit level. A reporting unit is a component of a
segment that constitutes a business, for which discrete financial information is available, and for which the operating results are regularly reviewed by management. We

develop an estimate of the fair value of each reporting unit using both a market approach and an income approach. If potential for impairment exists, the fair value of the reporting unit is
subsequently measured against the fair value of its underlying assets and liabilities, excluding goodwill, to estimate an implied fair value of the reporting units goodwill.

A change in events or circumstances, including a decision to hold an asset or group of assets for sale, a change in
strategic direction, or a change in the competitive environment could adversely affect the fair value of one or more reporting units. In the second quarter of 2011, due to the departure of our former CEO and subsequent change in strategy, along with
our commitment to close underperforming retail stores (which took place after the second quarter close but before our filing), we revised our financial projections related to certain reporting units. These circumstances indicated a potential
impairment of our goodwill and, as such, we assessed the fair value of our goodwill to determine if its book value exceeded its fair value. We determined that the book value of our goodwill did exceed its fair value and we recorded an impairment
charge of $10.0 million within the Payless Domestic reporting segment in the second quarter of 2011.

During
the third quarter of 2011, we performed our required annual goodwill impairment test and concluded there was no additional impairment of goodwill.

Interest Expense, net

Interest income and expense
components were:

(dollars in millions)

2011

2010

2009

Interest expense

$

38.9

$

48.7

$

60.8

Interest income

(0.4

)

(0.7

)

(1.1

)

Interest expense, net

$

38.5

$

48.0

$

59.7

The decline in interest expense in 2011 compared to 2010 is primarily a result of
decreased borrowings on our Term Loan Facility and Senior Subordinated Notes and an average lower rate on our Term Loan Facility.

The decline in interest expense in 2010 compared to 2009 is primarily a result of decreased borrowings of $184.0 million on our Term Loan Facility and Senior Subordinated Notes and an average lower rate
on our Term Loan Facility. The decline in interest income in 2010 compared to 2009 is primarily a result of lower interest rates on our invested cash balance.

Loss on Early Extinguishment of Debt

In 2011, the
loss on early extinguishment of debt relates to the acceleration of deferred debt costs and amortization of the discount on our Senior Subordinated Notes in proportion to the amounts extinguished. In 2010, the loss on early extinguishment of debt
relates to the acceleration of deferred debt costs on our Term Loan Facility in proportion to the amounts extinguished. In 2009, the loss on early extinguishment of debt relates to the premium, in excess of par, paid to redeem a portion of our
Senior Subordinated Notes, the acceleration of the discount on the Senior Subordinated Notes and the acceleration of deferred debt costs on both our Senior Subordinated Notes and our Term Loan Facility in proportion to the amounts extinguished.

Income Taxes

The effective tax rate was a negative 127.7% in 2011 versus 12.4% in 2010. Our effective tax rate differs from the US statutory rate principally due to the impact of a valuation allowance recorded
against our domestic net deferred tax assets which increased our provision for income taxes by $134.5 million, the impact of our operations conducted in jurisdictions with rates lower than the US statutory rate and the ongoing implementation of tax
efficient business initiatives. The effective income tax rate reconciliation is depicted in Note 11 of the Consolidated Financial Statements.

We recorded $75.8 million of net unfavorable discrete events in 2011,
inclusive of recording a valuation allowance of $80.8 million against domestic deferred tax assets arising in prior years because of a change in circumstances that caused a change in judgment about the realization of the domestic deferred tax
assets. The Company recorded $7.8 million of net favorable discrete events in 2010 relating primarily to the resolution of outstanding tax audits.

Our $65.8 million pre-tax loss was comprised of a $172.1 million domestic pre-tax loss, partially offset by foreign pre-tax income of $106.3 million. The reduction from the Companys federal
statutory rate related to foreign earnings results primarily from its offshore entities in Asia (China, Hong Kong, Taiwan, and Vietnam) which source the majority of the Companys product and are subject to substantially lower local country
income taxes. The Companys weighted average foreign effective tax rate for fiscal years 2011, 2010 and 2009 was 14.8%, 9.2% and 11.8%, respectively. The weighted average foreign effective tax rate is higher for 2011 due to payment of an audit
settlement in Asia for years 2002 to 2009. Similarly, the rate differential on foreign earnings is lower than prior years due to the Asian audit settlement as well as US deferred taxes provided on certain foreign earnings which are not permanently
reinvested.

Our estimate of uncertainty in income taxes is based on the framework established in income taxes
accounting guidance. This guidance prescribes a recognition threshold and a measurement standard for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The recognition and measurement
of tax benefits is often highly judgmental. Determinations regarding the recognition and measurement of a tax benefit can change as additional developments occur relative to the issue. Accordingly, our future results may include favorable or
unfavorable adjustments to our unrecognized tax benefits.

We anticipate that it is reasonably possible that
the total amount of unrecognized tax benefits at January 28, 2012 will decrease by up to $2.3 million within the next 12 months due to potential settlements of on-going examinations with tax authorities and the potential lapse of the statutes
of limitations in various taxing jurisdictions. To the extent that these tax benefits are recognized, the effective tax rate will be favorably impacted by up to $1.5 million.

The Company records valuation allowances against its deferred tax assets, when necessary, in accordance with the
framework established in income taxes accounting guidance. Realization of deferred tax assets (such as net operating loss carryforwards) is dependent on future taxable earnings and is therefore uncertain. We assess the likelihood that our
deferred tax assets in each of the jurisdictions in which we operate will be recovered from future taxable income. Deferred tax assets are reduced by a valuation allowance based upon an analysis of both positive and negative evidence,
including, but not limited to, the consideration of operating results and other objectively verifiable evidence that is available. If our near-term forecasts are not achieved, we may be required to record additional valuation allowances against
our deferred tax assets. This could have a material impact on our financial position and results of operations in a particular period. The establishment of a valuation allowance does not have any impact on cash, nor does such an allowance
preclude us from using the loss carryforwards or utilizing other deferred tax assets if we generate sufficient taxable income.

Our current year results generated a three year cumulative pre-tax loss in our domestic jurisdiction. The cumulative loss resulted in a requirement to record a non-cash valuation allowance on domestic
deferred tax assets of $105.7 million during the third quarter, and $33.1 million in the fourth quarter, as realization of the deferred tax assets were not more likely than not. Of the $138.8 million increase in domestic valuation allowance during
2011, $80.8 million relates to assets established in a prior year, and $58.0 million relates to deferred tax assets established in the current year. Our total valuation allowance at January 28, 2012 is $155.0 million comprised of the domestic
valuation allowance of $149.0 million and a foreign valuation allowance of $6.0 million relating primarily to net operating losses in countries where a pattern of profitability has not yet been established.

In assessing the future realization of deferred tax assets for which a
valuation allowance was not established, we concluded it is more likely than not that the assets will be realized. This conclusion was based in large part upon managements assessment that we will generate sufficient quantities of taxable
income from offshore operations in future years in the appropriate tax jurisdictions. Further, a specific review of our foreign deferred tax assets was conducted with Canada being the most significant jurisdiction. Management has concluded that no
valuation allowance is necessary on foreign deferred tax assets totaling $16.8 million. If near-term forecasts are not achieved, we may be required to record additional valuation allowances against our deferred tax assets. This could have a material
impact on our financial position, and results of operations in a particular period.

The realizability of
deferred tax assets will continue to be monitored quarterly. The establishment of a valuation allowance does not have any impact on cash, nor does such an allowance preclude us from using our loss carryforwards or utilizing other deferred tax assets
in the future. When the deferred tax assets currently subject to a valuation allowance are ultimately realized in the future, the benefit will be recorded in the Consolidated Statement of (Loss) Earnings, except for $23.1 million related to AOCI,
which will be credited to Collective Brands, Inc. shareowners equity.

As of January 28, 2012, we
have not provided tax on our cumulative undistributed earnings of foreign subsidiaries of approximately $244 million, because it is our intention to reinvest these earnings indefinitely. The calculation of the unrecognized deferred tax liability
related to these earnings is complex and is not practicable. If earnings were distributed, we would be subject to U.S. taxes and withholding taxes payable to various foreign governments. Based on the facts and circumstances at that time, we would
determine whether a credit for foreign taxes already paid would be available to reduce or offset the U.S. tax liability.

The Company uses certain non-GAAP financial measures to assess performance. These measures are included as a complement to
results provided in accordance with GAAP because we believe these non-GAAP financial measures help us explain underlying performance trends in our business and provide useful information to both management and investors. These measures should be
considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.

We use adjusted earnings before interest, income taxes, depreciation and
amortization (adjusted EBITDA) as a non-GAAP performance measure because we believe it reflects the Companys core operating performance by excluding certain charges and the impact of the effect of financing and investing activities
by eliminating the effects of interest, depreciation and amortization costs. The following table presents the reconciliation of net earnings to adjusted EBITDA:

(dollars in millions)

2011

2010

2009

Net (loss) earnings

$

(149.8

)

$

122.6

$

88.3

Earnings from discontinued operations, net of tax





(0.1

)

Provision for income taxes

84.0

17.4

9.4

Net interest expense (including loss on early extinguishment of debt)

39.0

49.7

60.9

Depreciation and amortization

129.3

135.4

139.9

Q2 2011 increase in impairment of tangible assets

32.5





Impairment of tradenames

31.1





Impairment of goodwill

10.0





CEO severance

10.0





Lease termination costs

10.6





Severance costs related to store closings

2.4





Impact of third-party store liquidations

1.7





Strategic review expenses

3.8





Adjusted EBITDA

$

204.6

$

325.1

$

298.4

The decrease in adjusted EBITDA in 2011 compared to 2010 is primarily driven by lower
gross margins and an increase in selling, general and administrative expenses.

The increase in Adjusted
EBITDA in 2010 compared to 2009 is primarily driven by improvement in gross margin and higher sales, partially offset by an increase in selling, general and administrative expenses.

We also use free cash flow, which is a non-GAAP performance measure, because we believe it provides useful information
about our liquidity, our ability to make investments and to service debt. Free cash flow is defined as cash flow provided by operating activities less capital expenditures. The following table presents our calculation of free cash flow:

(dollars in millions)

2011

2010

2009

Cash flow provided by operating activities

$

45.7

$

271.5

$

307.6

Less: Capital expenditures

98.9

97.6

84.0

Free cash flow

$

(53.2

)

$

173.9

$

223.6

The decrease in free cash flow in 2011 compared to 2010 is primarily related to a
decrease in cash flow provided by operating activities as a result of decreases in cash generated from net earnings and annualizing the extension of payment terms which reduced the favorable impact of changes to accounts payable compared to previous
years.

The decrease in free cash flow in 2010 compared to 2009 is primarily driven by lower cash flow
provided by operating activities. The decrease in cash provided by operating activities was driven by changes in the components of working capital due to increases in inventories (primarily due to more units at year-end 2010 versus lower-than-normal
units at year-end 2009, a greater mix of higher-cost products at Payless and PLG, and higher costs per unit) and accounts receivable, partially offset by the impact of increases in accounts payable due to the extension of payment terms to our
vendors and increases in net earnings.

Finally, we use net debt, which is a non-GAAP performance measure, because
we believe it provides useful information about the relationship between our long-term debt obligations and our cash and cash equivalents balance at a point in time. Net debt is defined as total debt less cash and cash equivalents. The following
table presents our calculation of net debt:

(dollars in millions)

2011

2010

2009

Total debt

$

609.9

$

664.5

$

849.3

Less: cash and cash equivalents

181.3

324.1

393.5

Net debt

$

428.6

$

340.4

$

455.8

The increase in net debt as of 2011 compared to 2010 was primarily due to a decreased
cash balance in 2011 driven by unfavorable working capital changes related to accrued expenses and lower earnings.

The decrease in net debt as of 2010 compared to 2009 was primarily due to our use of operating cash flow to pay down debt in 2010.

Reporting Segment Review of Operations

We operate our
business using four reporting segments: Payless Domestic, Payless International, PLG Retail and PLG Wholesale. We evaluate the performance of our reporting segments based on segment net sales and segment operating profit (loss) from continuing
operations as a measure of overall performance of the Company. The following table reconciles reporting segment net sales to consolidated net sales and operating profit (loss) from continuing operations to our consolidated operating profit (loss)
from continuing operations for the three years presented in our Consolidated Financial Statements:

The following table presents the change in store count during 2011, 2010 and
2009 by reporting segment. We consider a store relocation to be both a store opening and a store closing.

PaylessDomestic

PaylessInternational

PLGRetail

Total

Fiscal year ended January 28, 2012

Beginning store count

3,794

667

383

4,844

Stores opened

45

31

15

91

Stores closed

(340

)

(37

)

(62

)

(439

)

Ending store count

3,499

661

336

4,496

Fiscal year ended January 29, 2011

Beginning store count

3,827

643

363

4,833

Stores opened

43

42

27

112

Stores closed

(76

)

(18

)

(7

)

(101

)

Ending store count

3,794

667

383

4,844

Fiscal year ended January 30, 2010

Beginning store count

3,900

622

355

4,877

Stores opened

29

44

11

84

Stores closed

(102

)

(23

)

(3

)

(128

)

Ending store count

3,827

643

363

4,833

As of January 28, 2012, we franchised 143 Payless and 20 PLG Retail stores compared
to 62 Payless and 8 PLG Retail stores as of January 29, 2011. We had no franchised Payless or PLG Retail stores as of January 30, 2010. Franchised stores are not reflected in the table above.

For the Payless Domestic segment, our store activity plan for fiscal year 2012 includes a net decrease of approximately
65 stores. Including relocations as both a store opening and a store closing, this includes approximately 25 new stores and 90 store closings. For the Payless International segment, our store activity plan for fiscal year 2012 includes a net
increase of approximately 5 stores. Including relocations as both a store opening and a store closing, this includes approximately 20 new stores and 15 store closings. For the PLG Retail segment, our store activity plan for fiscal year 2012 includes
a net increase of approximately 10 stores. Including relocations as both a store opening and a store closing, this includes approximately 20 new stores and 10 store closings. We review our store activity plan at least on an annual basis.

The Payless Domestic reporting segment is comprised primarily of operations from our domestic retail stores under the
Payless ShoeSource name, the Companys sourcing operations and Collective Licensing. The following table presents selected financial data for our Payless segment for each of the past three fiscal years:

Percent change

2011

2010

2009

2011 vs. 2010

2010 vs. 2009

(dollars in millions)

Net sales

$

1,972.9

$

2,059.3

$

2,153.2

(4.2

)%

(4.4

)%

Operating (loss) profit from continuing operations

$

(96.0

)

$

75.2

$

98.1

NM

*%

(23.3

)%

Operating (loss) profit from continuing operations as % of net sales

(4.9

)%

3.7

%

4.6

%

*

NM = not meaningful

For the fiscal year 2011, net sales for the Payless Domestic reporting segment decreased 4.2% or $86.4 million, to $1,972.9 million, from 2010. The sales decline for 2011 was primarily due to higher
retail prices that did not provide a compelling value to our core customer. Our failure to connect with our core customer, primarily in the first three quarters of the year, resulted in Payless Domestics comparable store sales declining 3.6%
for the year. Operating fewer stores also contributed to the Payless Domestic decline in sales.

For the
fiscal year 2010, net sales for the Payless Domestic reporting segment decreased 4.4% or $93.9 million, to $2,059.3 million, from 2009. The decrease in net sales from 2009 to 2010 is primarily due to comparable store sales declines driven by weaker
economic conditions, lower traffic and fewer stores. These declines were partially offset by gains in fitness footwear and accessories.

As a percentage of net sales, operating loss from continuing operations was 4.9% for 2011 compared to operating profit of 3.7% for 2010. The percentage decrease is primarily driven by an increase in
tangible asset impairments, impairment of goodwill of $10.0 million, impairment of trademarks of $7.6 million, CEO severance of $10.0 million, lease termination costs of $9.3 million, and strategic review expenses of $3.4 million. Higher product
costs this year compared to last year also drove the percent decrease.

As a percentage of net sales,
operating profit from continuing operations decreased to 3.7% for 2010 compared to 4.6% for 2009. The percentage decrease is primarily due to the deleveraging of fixed costs due to lower net sales as well as increased marketing investments.

Payless International Segment Operating Results

Our Payless International reporting segment includes retail operations under the Payless ShoeSource name in Canada, the
Central and South American Regions, Puerto Rico and the U.S. Virgin Islands, as well as franchising arrangements under the Payless ShoeSource name. For all years presented, our franchising operations were not significant. As a percent of net sales,
operating profit from continuing operations in the Payless International segment is higher than in the Payless Domestic segment primarily due to lower payroll-related expenses.

For the fiscal year 2011, net sales for the Payless International reporting
segment increased 2.0% or $9.3 million, to $469.6 million, from 2010. Net sales increases for the Payless International reporting segment were driven by Latin America and were partially offset by sales declines in Puerto Rico and Canada. Our
comparable store sales for Payless International were down 0.9% for the year.

For the fiscal year 2010, net
sales for the Payless International reporting segment increased 9.0% or $37.9 million, to $460.3 million, from 2009. Net sales for the Payless International reporting segment increased due to higher sales in Central and South America, driven by
positive comparable store sales and higher store count. Our sales in Canada were impacted by favorable foreign exchange rates of $15.7 million.

As a percentage of net sales, operating profit from continuing operations decreased to 6.9% for 2011 compared to 12.1% for 2010. The percentage decrease is primarily due to tangible asset impairment
charges, increased promotional activity and higher product costs this year compared to last year. The operating profit decline from 2010 to 2011 was primarily driven by Canada and Puerto Rico where higher retail prices did not provide a compelling
value to our core customer.

As a percentage of net sales, operating profit from continuing operations
increased to 12.1% for 2010 compared to 8.1% in the for 2009. The percentage increase is primarily due to increased gross margin rates in all regions and the leveraging of fixed costs due to higher net sales.

PLG Wholesale Segment Operating Results

The PLG Wholesale reporting segment is comprised of PLGs wholesale operations, which primarily includes the Saucony,
Sperry Top-Sider, Stride Rite and Keds brands.

Percent change

2011

2010

2009

2011 vs. 2010

2010 vs. 2009

(dollars in millions)

Net sales

$

778.6

$

628.4

$

513.9

23.9

%

22.3

%

Operating profit from continuing operations

$

43.9

$

61.7

$

30.0

(28.8

)%

105.7

%

Operating profit from continuing operations as % of net sales

5.6

%

9.8

%

5.8

%

For the fiscal year 2011, net sales for the PLG Wholesale reporting segment increased
23.9% or $150.2 million, to $778.6 million, from 2010. The increase in net sales is due to global gains in the Sperry Top-Sider, Saucony, and Stride Rite brands.

For the fiscal year 2010, net sales for the PLG Wholesale reporting segment increased 22.3% or $114.5 million, to $628.4
million, from 2009. The increase in net sales was driven primarily by higher sales for Sperry Top-Sider and Saucony due to increased demand for these brands.

As a percentage of net sales, operating profit from continuing operations decreased to 5.6% for 2011 compared to 9.8% in 2010. The percentage decrease was primarily due to impairment of trademarks of
$23.5 million, higher product costs, and higher marketing costs, offset by the leveraging of fixed costs due to higher net sales.

As a percentage of net sales, operating profit from continuing operations increased to 9.8% for 2010 compared to 5.8% in 2009. The percentage increase was primarily due to the leveraging of fixed costs
due to higher net sales, offset by higher product, freight and marketing costs.

For fiscal year 2011, net sales for the PLG Retail reporting segment increased 5.7% or
$12.9 million, to $240.6 million, from 2010. The increase in net sales was primarily due to the contribution of the Sperry retail stores and a 1.8% comparable store sales increase.

For fiscal year 2010, net sales for the PLG Retail reporting segment increased 4.3% or $9.3 million, to $227.7 million,
from 2009. The increase in net sales was due to an increase in the number of stores, offset by lower comparable store sales of 1.6%.

As a percentage of net sales, operating loss from continuing operations increased to 3.0% for 2011 compared to 1.2 % for 2010. The percentage increase was primarily due the increase in asset
impairment charges and higher product costs in 2011 compared to 2010.

As a percentage of net sales, operating
loss from continuing operations decreased to 1.2% for 2010 compared to 1.7 % for 2009. Operating loss as a percentage of net sales was positively impacted by selling, general and administrative expense improvement initiatives and fewer
markdowns.

Liquidity and Capital Resources

Our cash position tends to be higher in June as well as September to October, due primarily to the seasonality of our
business, which is impacted by the cash received for sales during Easter and back-to-school, respectively. Our cash position tends to be lowest around February to March when Easter inventories are built-up but not yet sold. Any materially adverse
change in customer demand, fashion trends, competitive market forces or customer acceptance of our merchandise mix and retail locations, uncertainties related to the effect of competitive products and pricing, risks associated with foreign global
sourcing or economic conditions worldwide could affect our ability to continue to fund our needs from business operations. Internally generated cash flow from operations has been our primary source of cash and we believe projected operating cash
flows and current credit facilities will be adequate to fund our working capital requirements, scheduled debt repayments, and to support the development of our short-term and long-term operating strategies. Substantially all of our real estate is
financed through operating leases.

We ended 2011 with a cash and cash equivalents balance of $181.3 million, a
decrease of $142.8 million from 2010. Our decrease in cash and cash equivalents from 2010 is primarily driven by lower operating results, voluntary early debt repayments of $50.0 million, capital expenditures and working capital requirements,
primarily accounts receivable and accrued expenses. Significant sources and (uses) of cash are summarized below:

(dollars in millions)

2011

2010

2009

Net (loss) earnings

$

(149.8

)

$

122.6

$

88.3

Depreciation and amortization

131.7

138.2

143.2

Other non-cash items

183.3

36.7

36.2

Working capital (increases) decreases

(102.3

)

(16.8

)

64.6

Other operating activities

(17.2

)

(9.2

)

(24.7

)

Cash flow provided by operating activities

45.7

271.5

307.6

Payments for capital expenditures

(98.9

)

(97.6

)

(84.0

)

Other investing activities

(1.4

)



(16.2

)

Cash flow used in investing activities

(100.3

)

(97.6

)

(100.2

)

Net (purchases) issuances of common stock

(16.9

)

(53.2

)

0.6

Payments of debt and deferred financing costs

(56.9

)

(185.2

)

(67.0

)

Net distributions to noncontrolling interests

(13.2

)

(7.7

)

(0.7

)

Issuance of debt





2.1

Cash flow used in financing activities

(87.0

)

(246.1

)

(65.0

)

Effect of exchange rate changes on cash

(1.2

)

2.8

1.8

(Decrease) increase in cash and cash equivalents

$

(142.8

)

$

(69.4

)

$

144.2

As of January 28, 2012, our foreign subsidiaries and joint ventures had $134.7
million in cash located in financial institutions outside of the United States. A majority of this cash represents undistributed earnings of our foreign subsidiaries, which are indefinitely reinvested. In the event of a distribution to the United
States, those earnings could be subject to United States federal and state income taxes, net of foreign tax credits.

Cash Flow Provided by Operating Activities

Cash flow from operations was $45.7 million in 2011 compared to $271.5 million in 2010 and $307.6 million in 2009. The
change in cash flow from operations from 2011 compared with 2010 is primarily due to lower cash generated from net earnings and decreases in accounts payable and accrued expenses compared to 2010. The decrease in net earnings was offset by certain
non-cash charges primarily related to the recognition of our valuation allowance and tangible and intangible asset impairments. The decrease in the cash flow provided by accounts payable is due to annualizing the extension of payment terms which
reduced the favorable impact in 2011 compared to 2010. The decrease in accrued expenses is primarily due to lower variable compensation related accruals.

The change in cash flow from operations from 2010 compared with 2009 is primarily due to changes in working capital due to increases in inventories and accounts receivable; offset by increases in accounts
payable and net earnings. The increase in inventories was driven by more units at year-end 2010, returning them to a more normal year-end level, a greater mix of higher-cost products at Payless and PLG, and higher costs per unit. The increase in
accounts receivable was due to revenue growth in our PLG Wholesale reporting segment. The increase in accounts payable is primarily due to the extension of payment terms with our merchandise vendors.

We contributed $0.4 million, $1.6 million and $9.5 million to the PLG
pension plan in 2011, 2010, and 2009, respectively. We plan on making $4.0 million in contributions in 2012. Our contributions in 2012 and beyond will depend upon market conditions, interest rates and other factors and may vary significantly in
future years based upon the plans funded status. We believe our internal cash flow will finance all of these future contributions.

Cash Flow Used in Investing Activities

In 2011, our
capital expenditures totaled $98.9 million. Capital expenditures for new and relocated stores were $26.0 million, capital expenditures to remodel existing stores were $36.6 million, capital expenditures for information technology hardware and
systems development were $26.3 million, capital expenditures for supply chain were $2.7 million and capital expenditures for other necessary improvements including corporate expenditures were $7.3 million. We expect that cash paid for capital
expenditures during 2012 will be approximately $80 million to $85 million. We intend to use internal cash flow from operations and available financing from the Amended Revolving Loan Facility, if necessary, to finance all of these capital
expenditures. We also acquired certain intangible assets during 2011, which totaled $1.4 million.

In 2010,
our capital expenditures totaled $97.6 million. Capital expenditures for new and relocated stores were $24.5 million, capital expenditures to remodel existing stores were $21.1 million, capital expenditures for information technology hardware and
systems development were $33.3 million, capital expenditures for supply chain were $4.7 million and capital expenditures for other necessary improvements including corporate expenditures were $14.0 million.

In 2009, our capital expenditures totaled $84.0 million. Capital expenditures for new and relocated stores were $23.7
million, capital expenditures to remodel existing stores were $20.4 million, capital expenditures for information technology hardware and systems development were $27.2 million, capital expenditures for supply chain were $5.0 million and capital
expenditures for other necessary improvements including corporate expenditures were $7.7 million. We also acquired certain trademarks, including Above the Rim, during 2009.

On August 17, 2007, we entered into a $725 million term loan (the Term Loan
Facility) and a $350 million Amended and Restated Loan and Guaranty Agreement (the Revolving Loan Facility). The Term Loan Facility ranks pari passu in right of payment and have the lien priorities specified in an
intercreditor agreement executed by the administrative agent to the Term Loan Facility. On August 16, 2011, we amended our $350 million Revolving Loan Facility with a $300 million Second Amended and Restated Loan and Guaranty Agreement
(Amended Revolving Loan Facility and collectively with the Term Loan Facility, the Loan Facilities). The Loan Facilities are senior secured loans guaranteed by substantially all of the assets of the borrower and the
guarantors, with the Amended Revolving Loan Facility having first priority in accounts receivable, inventory and certain related assets and the Term Loan Facility having first priority in substantially all of the borrowers and the
guarantors remaining assets, including intellectual property, the capital stock of

each domestic subsidiary, any intercompany notes owned by the borrower and the guarantors, and 66% of the stock of non-U.S. subsidiaries directly owned by borrower or a guarantor.

The Term Loan Facility will mature on August 17, 2014. The Term Loan Facility will amortize quarterly in annual
amounts of 1.0% of the original amount, reduced ratably by any prepayments, with the final installment payable on the maturity date. The Term Loan Agreement provides for customary mandatory prepayments, subject to certain exceptions and limitations
and in certain instances, reinvestment rights, from (a) the net cash proceeds of certain asset sales, insurance recovery events and debt issuances, each as defined in the Term Loan Agreement, and (b) 25% of excess cash flow, as defined in
the Term Loan Agreement, subject to reduction. The mandatory prepayment is not required if the total leverage ratio, as defined in the Term Loan Agreement, is less than 2.0 to 1.0 at fiscal year end. Based on our excess cash flow as of
January 28, 2012, we are not required to make such a mandatory prepayment. Loans under the Term Loan Facility will bear interest at the Borrowers option, at either (a) the Base Rate as defined in the Term Loan Facility agreement plus
1.75% per annum or (b) the Eurodollar (LIBOR-indexed) Rate plus 2.75% per annum, with such margin to be agreed for any incremental term loans.

In 2010 and 2009, not including our required quarterly payments, we repaid $178.0 million and $18.0 million of our outstanding Term Loan Facility balance, respectively. We made no repayments, other than
our required quarterly payments, on our Term Loan Facility balance in 2011. The balance remaining on our Term Loan Facility as of January 28, 2012 was $484.4 million.

On August 24, 2007, we entered into an interest rate swap arrangement for $540 million to hedge a portion of our
variable rate Term Loan Facility. The interest rate swap provides for a fixed interest rate of approximately 7.75%, portions of which mature on a series of dates through May of 2012. The balance of the Term Loan Facility that is hedged under the
interest rate swap is $90 million as of the end of 2011. This derivative instrument is designated as a cash flow hedge for accounting purposes.

The Amended Revolving Loan Facility matures on August 16, 2016 and bears interest at the London Inter-Bank Offer Rate (LIBOR), plus a variable margin of 1.75% to 2.25% or the base rate as
defined in the agreement. The Amended Revolving Loan Facility provides increased flexibility for investments, incurrence of indebtedness and restricted payments including prepayments on our Senior Subordinated Notes, subject to excess line
availability tests. The facility will be available as needed for general corporate purposes. As of January 28, 2012 the borrowing base on our Amended Revolving Loan Facility was $300.0 million less $28.6 million in outstanding letters of credit
or $271.4 million. We did not have any borrowings on our Revolving Loan Facility at any time during 2011.

In
July 2003, we sold $200.0 million of 8.25% Senior Subordinated Notes (the Senior Subordinated Notes) for $196.7 million, due 2013. The discount of $3.3 million is being amortized to interest expense over the life of the Notes. The Notes
are guaranteed by all of our domestic subsidiaries. Interest on the Notes is payable semi-annually. We may, on any one or more occasions, redeem all or a part of the Notes at 100% of their face value, plus accrued and unpaid interest, if any, on the
Senior Subordinated Notes redeemed.

In 2011 and 2009, we redeemed $50.0 million and $23.0 million of our
outstanding Senior Subordinated Notes, respectively. We made no such redemptions in 2010. The balance remaining on our Senior Subordinated Notes as of January 28, 2012 was $125.0 million, which is recorded net of a $0.4 million discount. We are
subject to financial covenants under our Loan Facilities. We have a financial covenant under our Term Loan Facility agreement that requires us to maintain, on the last day of each fiscal quarter, a total leverage ratio of not more than 4.0 to 1. As
of January 28, 2012 our leverage ratio, as defined in our Term Loan Facility agreement, was 2.6 to 1 and we were in compliance with all of our covenants. We expect, based on our current financial projections, to be in compliance with our
covenants for the next twelve months.

The Loan Facilities and the Senior Subordinated Notes contain other
various covenants, including those that may limit our ability to pay dividends, repurchase stock, accelerate the retirement of debt or make certain investments.

Our financial commitments as of January 28, 2012, are described below:

Cash Payments Due by Fiscal Year

Total

Less thanOne Year

1-3 Years

3-5 Years

More thanFive Years

(dollars in millions)

Senior Subordinated Notes (including unamortized discount)

$

125.0

$



$

125.0

$



$



Term Loan Facility

484.4

5.0

479.4





Capital-lease obligations (including interest)

1.4

0.1

0.3

0.3

0.7

Operating lease obligations(1)

1,018.1

252.1

364.6

204.7

196.7

Interest on long-term debt(2)

64.0

26.5

37.5





Royalty obligations(3)

80.9

10.6

18.6

10.4

41.3

Pension obligations(4)

84.4

7.7

16.0

17.2

43.5

Service agreement obligations(5)

19.2

5.6

9.6

4.0



Employment agreement obligations(6)

21.2

12.6

8.6





Total

$

1,898.6

$

320.2

$

1,059.6

$

236.6

$

282.2

(1)

We lease substantially all of our stores and are committed to making lease payments over varying lease terms. Operating lease obligations represent
the total lease obligations due to landlords, including obligations related to closed stores, as well as our obligations related to leases that we have sublet. In instances where failure to exercise renewal options would result in an economic
penalty, the calculation of lease obligations includes renewal option periods.

(2)

Interest on long-term debt includes the expected interest payments on our 8.25% Senior Subordinated Notes, the portion of our Term Loan Facility
that is fixed at approximately 7.75% under our interest rate swap and the unhedged portion of our Term Loan Facility that varies based on LIBOR rates. The interest rates used for the unhedged portion of our Term Loan Facility were based on our
estimate of the forward LIBOR rate curve as of January 28, 2012.

We issue cancelable purchase orders to various vendors for the purchase of our merchandise. As of January 28, 2012,
we had merchandise purchase obligations in the amount of $301.8 million for which we will likely take delivery.

Our liability for unrecognized tax benefits, excluding interest and penalties, is $31.8 million as of January 28,
2012. We are unable to make a reasonably reliable estimate of the amount and period of related future payments on this balance.

A summary of key financial information for the periods indicated is as follows:

2011

2010

2009

Debt-capitalization Ratio*

48.6

%

44.7

%

53.6

%

*

Debt-to-capitalization has been computed by dividing total debt by capitalization. Total debt is defined as long-term debt including current
maturities, notes payable and borrowings under the revolving line of credit, if applicable. Capitalization is defined as total debt and shareowners equity. The debt-to-capitalization ratio, including the present value of future minimum rental
payments under operating leases as debt and as capitalization, was 70.3%, 66.7%, and 72.3%, respectively, for the periods referred to above.

The increase in the debt-capitalization ratio from 2010 to 2011 is primarily due to a decrease in shareowners equity due to a net loss attributable to Collective Brands, Inc.

The decrease in the debt-capitalization ratio from 2009 to 2010 is primarily due to a lower debt balance as a result of
our early extinguishment of debt and an increase in shareowners equity due to increased earnings attributable to Collective Brands, Inc.

Critical Accounting Policies

MD&A is based upon our Consolidated Financial Statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. These principles require us
to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and the notes thereto. Actual results may differ from these estimates, and such differences may be material to the Consolidated Financial
Statements. We believe that the following critical accounting policies involve a higher degree of judgment or complexity. See the Notes to our Consolidated Financial Statements for a complete discussion of our significant accounting policies.

Inventories

Merchandise inventories in our stores are valued by the retail method and are stated at the lower of cost, determined using the first-in, first-out (FIFO) basis, or market. Prior to shipment
to a specific store, inventories are valued at the lower of cost using the FIFO basis, or market. The retail method is widely used in the retail industry due to its practicality. Under the retail method, cost is determined by applying a calculated
cost-to-retail ratio across groupings of similar items, known as departments. As a result, the retail method results in an averaging of inventory costs across similar items within a department. The cost-to-retail ratio is applied to ending inventory
at its current owned retail valuation to determine the cost of ending inventory on a department basis. Current owned retail represents the retail price for which merchandise is offered for sale on a regular basis, reduced for any permanent or
clearance markdowns. As a result, the retail method normally results in an inventory valuation that is lower than a traditional FIFO cost basis.

Inherent in the retail method calculation are certain significant management judgments and estimates including markdowns and shrinkage, which can significantly impact the owned retail and, therefore, the
ending inventory valuation at cost. Specifically, the failure to take permanent or clearance markdowns on a timely basis can result in an overstatement of cost under the retail method. We believe that our application of the retail method reasonably
states inventory at the lower of cost or market.

Wholesale inventories are valued at the lower of cost or
market using the FIFO method.

We make ongoing estimates relating to the net realizable value of inventories,
based upon our assumptions about future demand and market conditions. If we estimate that the net realizable value of our inventory is less

than the cost of the inventory recorded on our books, we reduce inventory to the estimated net realizable value. If changes in market conditions result in reductions in the estimated net
realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination. We have continually managed these risks in the past and believe we can successfully manage them in the
future. However, our revenues and operating margins may suffer if we are unable to effectively manage these risks.

Property and Equipment

We evaluate our stores on a quarterly basis to determine if their assets are recoverable. Our primary indicator that store assets may not be recoverable is if a stores projected future undiscounted
cash flows are less than the carrying amount of the stores assets. The underlying estimates of cash flows include estimates of future net sales, gross margin rates and store expenses as well as any potential for changes related to occupancy
costs, store closures and transfer sales. These assumptions are based upon the stores past and expected future performance. An indicator of impairment may also exist if we commit to a plan to close stores. If an indicator of
impairment exists, we model estimated future cash flows on a store-by-store basis and compare the present value, using an appropriate discount rate, of these cash flows to the carrying amount of the assets. An impairment loss is recognized when the
carrying amount of the stores assets exceeds their fair value.

Our impairment calculations require us
to apply judgment in estimating future net sales, gross margin rates and store expenses as well as any potential for changes related to occupancy costs, store closures and transfer sales. We also apply judgment in estimating asset fair values,
including the selection of an appropriate discount rate. If we do not meet our projections, we may incur significant impairment charges in future periods.

Defined Benefit Plans

The Company has defined
benefit pension plans. One of the plans is frozen and no longer accrues future retirement benefits. Major assumptions used in the accounting for the other employee benefit plan include the discount rate, expected return on plan assets and rate of
increase in employee compensation levels. Assumptions are determined based on our data and appropriate market indicators, and are evaluated each year as of the plans measurement date. A change in any of these assumptions would have an effect
on net periodic pension and post-retirement benefit costs reported in the Consolidated Financial Statements.

We use a cash flow matching approach for determining the appropriate discount rate for the defined benefit pension plan.
The approach is derived from U.S. Treasury rates, plus an option-adjusted spread varying by maturity, to derive hypothetical Aa corporate bond rates. The calculation of pension expense is dependent on the determination of the assumptions
used. A 100 basis point decrease in the discount rate and a 100 basis point decrease in the expected long-term return on assets would increase the Companys annual pension expense by $1.0 million and $0.7 million, respectively.

Accounting for Taxes

Our estimate of uncertainty in income taxes is based on the framework established in income taxes accounting guidance. This guidance prescribes a recognition threshold and a measurement standard for the
financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The recognition and measurement of tax benefits is often highly judgmental. Determinations regarding the recognition and measurement of a
tax benefit can change as additional developments occur relative to the issue. Accordingly, our future results may include favorable or unfavorable adjustments to our unrecognized tax benefits.

We record valuation allowances against our deferred tax assets, when necessary, in accordance with the framework
established in income taxes accounting guidance. Realization of deferred tax assets (such as net operating loss carryforwards) is dependent on future taxable earnings and is therefore uncertain. We assess the

likelihood that our deferred tax assets in each of the jurisdictions in which we operate will be recovered from future taxable income. Deferred tax assets are reduced by a valuation allowance to
recognize the extent to which, more likely than not, the future tax benefits will not be realized. If our near-term forecasts are not achieved, we may be required to record additional valuation allowances against our deferred tax assets. This could
have a material impact on our financial position and results of operations in a particular period.

Our
current year results generated a three year cumulative pre-tax loss in our domestic jurisdiction. The cumulative loss resulted in a requirement to record a non-cash valuation allowance on domestic deferred tax assets of $105.7 million during the
third quarter of 2011, and $33.1 million in the fourth quarter of 2011, as realization of the deferred tax assets was not more likely than not. Of the $138.8 million increase in domestic valuation allowance during 2011, $80.8 million relates to
assets established in a prior year, and $58.0 million relates to deferred tax assets established in the current year. Our total valuation allowance at January 28, 2012 is $155.0 million comprised of the domestic valuation allowance of $149.0
million and a foreign valuation allowance of $6.0 million relating primarily to net operating losses in countries where a pattern of profitability has not yet been established. The establishment of a valuation allowance does not have any impact on
cash, nor does such an allowance preclude us from using the loss carryforwards or utilizing other deferred tax assets if we generate sufficient taxable income. If the deferred tax assets currently subject to a valuation allowance are ultimately
realized in the future, the benefit will likely be recorded in the Consolidated Statement of (Loss) Earnings, except for $23.1 million related to accumulated other comprehensive (loss) income (AOCI), which will be credited to Collective
Brands, Inc. shareowners equity. As of January 28, 2012, we have $16.8 million of net deferred tax assets that have not been reduced by a valuation allowance.

Accounting for Goodwill

We assess goodwill for
impairment annually and at any other date when events or changes in circumstances indicate that the book value of our reporting units may exceed their fair value. A reporting unit is a component of a segment that constitutes a business, for which
discrete financial information is available, and for which the operating results are regularly reviewed by management. We have five reporting units for the purposes of assessing goodwill: Payless Domestic, Payless International, PLG Wholesale, PLG
Retail, and Collective Licensing.

The goodwill impairment test involves a two-step process. The first step is
a comparison of each reporting units fair value to its book value. If the book value of a reporting unit exceeds its fair value, goodwill is considered potentially impaired and the Company must complete the second step of the goodwill
impairment test. The amount of impairment is determined by comparing the implied fair value of reporting unit goodwill to the book value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination.
Specifically, we would allocate the fair value to all of the assets and liabilities of the reporting unit in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the
recorded goodwill, we would recognize an impairment charge for the difference.

The fair value of the
reporting units is determined using a combined income and market approach. The income approach uses a reporting units projection of estimated cash flows and is discounted using a weighted-average cost of capital that reflects current market
conditions. The market approach may involve use of the guideline transaction method, the guideline company method, or both. The guideline transaction method makes use of available transaction price data of companies engaged in the same or a similar
line of business as the respective reporting unit. The guideline company method uses market multiples of publicly traded companies with operating characteristics similar to the respective reporting unit. We consider value indications from both the
income approach and market approach in estimating the fair value of each reporting unit in our analysis. We also compare the aggregate fair value of our reporting units to our market capitalization plus a control premium at each reporting period.

Our goodwill balance by reporting segment and reporting unit as of
January 28, 2012 is as follows:

Reporting Segment

Reporting Unit

Goodwill Balance

(in millions)

PLG Wholesale

PLG Wholesale

$

239.6

Payless Domestic

Collective Licensing

30.2

Total

$

269.8

Management judgment is a significant factor in determining whether an indicator of
impairment has occurred. We rely on estimates in determining the fair value of each reporting unit, which include the following critical quantitative factors:



Anticipated future cash flows and long-term growth rates for each reporting unit. The income approach to determining
fair value relies on the timing and estimates of future cash flows, including an estimate of long-term growth rates. The projections use our estimates of economic and market conditions over the projected period including growth rates in sales and
estimates of expected changes in operating margins. Our projections of future cash flows are subject to change as actual results are achieved that differ from those anticipated. Actual results could vary significantly from estimates.

A 550 basis point decrease in our assumed future cash flow growth rates, keeping all other
variables constant, would cause our Collective Licensing reporting unit to fail step one of the goodwill impairment test. A 650 basis point decrease in our assumed future cash flow growth rates, keeping all other variables constant, would cause our
PLG Wholesale reporting unit to fail step one of the goodwill impairment test. Under this scenario, we would be required to perform step two of the goodwill impairment test, which could result in the recognition of a significant impairment charge.



Selection of an appropriate discount rate. The income approach requires the selection of an appropriate discount rate,
which is based on a weighted average cost of capital analysis. The discount rate is subject to changes in short-term interest rates and long-term yield, as well as variances in the typical capital structure of marketplace participants in our
industry. The discount rate is determined based on assumptions that would be used by marketplace participants, and for that reason, the capital structure of selected marketplace participants is used in the weighted average cost of capital analysis.
Because the selection of the discount rate is dependent on several variables, it is possible that the discount rate could change from year to year.

A 300 basis point increase in our assumed discount rate, keeping all other variables constant, would cause our Collective
Licensing reporting unit to fail step one of the goodwill impairment test. A 425 basis point increase in our assumed discount rate, keeping all other variables constant, would cause our PLG Wholesale reporting unit to fail step one of the goodwill
impairment test. Under either scenario described above, we would be required to perform step two of the goodwill impairment test, which could result in the recognition of a significant impairment charge.

In the second quarter of 2011, due to underperformance in our retail businesses, we revised our financial projections
related to our reporting units. These revisions indicated a potential impairment of our goodwill and, as such, we assessed the fair value of our reporting units to determine if their book value exceeded their fair value. As a result of this
assessment, we determined that the book value of goodwill exceeded its fair value and we recognized $10.0 million of pre-tax impairment charges for goodwill in the second quarter of 2011. During the third quarter 2011, we performed our required
annual goodwill impairment test and concluded there was no impairment of goodwill.

In future periods, if our
goodwill were to become impaired, the resulting impairment charge could have a material impact on our financial position and results of operations.

Indefinite-lived intangible assets consist of certain trademarks that are not amortized, but are tested for impairment
annually and more frequently if circumstances indicate potential impairment, through a comparison of their fair value to their carrying amount.

Favorable leases, certain trademarks and other intangible assets with finite lives are amortized over their useful lives using the straight-line method. Customer relationships are amortized based on the
time period over which the benefits of the asset are expected to occur.

Each period we evaluate whether
events and circumstances warrant a revision to the remaining estimated useful life of each intangible asset. If we were to determine that events and circumstances warrant a change to the estimate of an intangible assets remaining useful life,
then the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life.

The impairment test for indefinite-lived trademarks compares each trademarks fair value to its book value. If the book value of a trademark exceeds its fair value, the trademark is considered
impaired and the Company recognizes an impairment charge for the difference. The fair values of our trademarks are determined using either the relief from royalty method or the excess earnings method, which are forms of the income approach. The
relief from royalty method is based on the theory that the owner of the trademark is relieved of paying a royalty or license fee for the use of the trademark. The excess earnings method calculates the value of the trademark by discounting its future
cash flows. The Company evaluates the fair value of $301.4 million of its indefinite-lived trademarks using the relief from royalty method and the remaining $33.0 million of its indefinite-lived trademarks using the excess earnings method.

Management judgment is a significant factor in determining whether an indicator of impairment for trademarks
has occurred. We rely on estimates in determining the fair value of certain trademarks using the relief from royalty method, which include the following critical quantitative factors:



Anticipated future revenues and long-term growth rates for each trademark. The relief from royalty approach to
determining fair value relies on the timing and estimates of future revenues, including an estimate of long-term growth rates. Our projections of future revenues are subject to change based on actual performance and the collection of additional
information. Because our financial performance is dependent upon several factors including, but not limited to, general economic cycles, fashion trends and the behavior of core customers, actual results could vary significantly from estimates and
our projections may change significantly from period to period. See Risk Factors for a more detailed list of factors that could impact our results.

The following table illustrates the impairment charge for those trademarks valued using the relief from royalty method at
various basis point (bp) decreases in our assumed revenue growth rates, keeping all other variables constant (potential impairment in millions):

Decrease in revenue growth
rate

BP Decrease

Potential Impairment

200

$

0.0

300

$

0.9

400

$

3.5

500

$

5.9



Reasonable market royalty rate for each trademark. The relief from royalty approach used in determining fair value
requires selection of appropriate royalty rates for each trademark. The rates selected depend upon, among other things, licensing agreements involving similar trademarks, historical and forecasted operating profit for each trademark and qualitative
factors such as market awareness, history, longevity, and market size.

While we do not expect the market royalty rate to change significantly from
period to period, a small change in the royalty rate used in determining the fair value of our trademarks could result in a significant impairment charge. The following table illustrates the impairment charge for those trademarks valued using the
relief from royalty method at various bp decreases in our assumed market royalty rates, keeping all other variables constant:

Decrease in royalty rate

BP Decrease

Potential Impairment

25

$

0.0

50

$

5.3

75

$

14.3

100

$

23.9



Selection of an appropriate discount rate. The relief from royalty approach requires the selection of an appropriate
discount rate, which is based on a weighted average cost of capital analysis. The discount rate is subject to changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of marketplace participants
in the Companys industry, as well as market conditions that impact the overall value of the Company. Because the selection of the discount rate is dependent on several variables, it is possible that the discount rate could change significantly
from year to year.

The following table illustrates the impairment charge for those
trademarks valued using the relief from royalty method at various basis point (bp) increases in our assumed discount rate, keeping all other variables constant (potential impairment in millions):

Increase in discount rate

BP Decrease

Potential Impairment

100

$

3.4

200

$

12.4

300

$

20.7

400

$

28.5

We also rely on estimates in determining the fair value of certain trademarks using the
excess earnings method, which include the following critical quantitative factors:



Anticipated future cash flows and long-term growth rates for each trademark. The excess earnings approach to
determining fair value relies on the timing and estimates of future cash flows, including an estimate of long-term growth rates. Our projections of future cash flows are subject to change based on actual performance and the collection of additional
information. Because our financial performance is dependent upon several factors including, but not limited to, general economic cycles, fashion trends and the behavior of core customers, actual results could vary significantly from estimates and
our projections may change significantly from period to period. See Risk Factors for a more detailed list of factors that could impact our results.

The following table illustrates the impairment charge for those trademarks valued using the excess earnings method at
various basis point (bp) decreases in our assumed cash flow growth rates, keeping all other variables constant (potential impairment in millions):

Selection of an appropriate discount rate. The excess earnings approach requires the selection of an appropriate
discount rate, which is based on a weighted average cost of capital analysis. The discount rate is subject to changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of marketplace participants
in the Companys industry, and the overall value of the Company. Because the selection of the discount rate is dependent on several variables, it is possible that the discount rate could change significantly from year to year.

The following table illustrates the impairment charge for those trademarks valued using the
excess earnings method at various basis point (bp) increases in our assumed discount rate, keeping all other variables constant (potential impairment in millions):

Increase in discount rate

BP Decrease

Potential Impairment

100

$

0.0

200

$

2.5

300

$

4.7

400

$

6.5

In the second quarter of 2011, due to underperformance in our retail businesses, we
revised our financial projections related to certain indefinite-lived trademarks. These revisions indicated a potential impairment of certain indefinite lived trademarks and, as such, we assessed the fair value of these indefinite-lived trademarks
to determine if their book value exceeded their fair value. This assessment indicated that the book value of certain indefinite-lived trademarks exceeded their fair value and we recognized $31.1 million of pre-tax impairment charges in the second
quarter of 2011. During the third quarter of 2011, we performed our required annual indefinite-lived intangible asset impairment test and concluded there was no impairment of its indefinite-lived intangible assets.

In future periods, if our indefinite-lived trademarks were to become impaired, the resulting impairment charge could have
a material adverse impact on our financial position and results of operations.

New Accounting Standards

See Note 19 of the Consolidated Financial Statements for new accounting standards, including the
expected dates of adoption and estimated effects on our Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Interest on our Amended Revolving Loan Facility, which is entirely comprised of a revolving line of credit, is based on the London Inter-Bank Offered Rate (LIBOR) plus a variable margin of
1.75% to 2.25%, or the base rate, as defined in the credit agreement. There are no outstanding borrowings on the Revolving Loan Facility at any time during the 52 weeks ended January 28, 2012; however, if we were to borrow against our Revolving
Loan Facility, borrowing costs may fluctuate depending upon the volatility of LIBOR. On August 24, 2007, we entered into an interest rate swap arrangement for $540 million to hedge a portion of our variable rate Term Loan Facility. As of
January 28, 2012, we have hedged $90 million of our Term Loan Facility. The interest rate swap provides for a fixed interest rate of approximately 7.75%, portions of which mature on a series of dates through May of 2012. The unhedged portion of
the Term Loan Facility is subject to interest rate risk depending on the volatility of LIBOR. As of January 28, 2012, a 100 basis point increase in LIBOR on the unhedged portion of the Companys Term Loan Facility debt, which totals $394.4
million, would impact pretax interest expense by approximately $4 million annually or approximately $1 million per quarter.

We have operations in foreign countries; therefore, our cash flows in U.S. dollars are impacted by fluctuations in foreign
currency exchange rates. We adjust our retail prices, when possible, to reflect changes in exchange rates to mitigate this risk. To further mitigate this risk, we may, from time to time, enter into forward contracts to purchase or sell foreign
currencies. For the 52 weeks ended January 28, 2012, fluctuations in foreign currency exchange rates did not have a material impact on our operations or cash flows.

A significant percentage of our footwear is sourced from the Peoples Republic of China (the PRC). The
national currency of the PRC, the Yuan, is currently not a freely convertible currency. The value of the Yuan depends to a large extent on the PRC governments policies and upon the PRCs domestic and international economic and political
developments. Since 1994, the official exchange rate for the conversion of the PRCs currency was pegged to the U.S. dollar at a virtually fixed rate of approximately 8.28 Yuan per U.S. dollar. However, during 2005, the PRCs government
revalued the Yuan and adopted a more flexible system based on a trade-weighted basket of foreign currencies of the PRCs main trading partners. Under the new managed float policy, the exchange rate of the Yuan may shift each day up
to 0.5% in either direction from the previous days close, and as a result, the valuation of the Yuan may increase incrementally over time should the PRC central bank allow it to do so, which could significantly increase the cost of the
products we source from the PRC. As of January 27, 2012, the last day of trading in our fiscal year, the exchange rate was 6.28 Yuan per U.S. dollar compared to 6.57 Yuan per U.S. dollar at the end of our 2010 fiscal year and 6.82 Yuan per U.S.
dollar at the end of our 2009 fiscal year.

Management is responsible for the preparation, integrity and objectivity of the financial information included in this
annual report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States applied on a consistent basis.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts. Although the financial statements reflect all available information and managements judgment and estimates of current conditions and circumstances, and are
prepared with the assistance of specialists within and outside the Company, actual results could differ from those estimates.

Management has established and maintains an internal control structure to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition that the accounting
records provide a reliable basis for the preparation of financial statements, and that such financial statements are not misstated due to material fraud or error. Internal controls include the careful selection of associates, the proper segregation
of duties and the communication and application of formal policies and procedures that are consistent with high standards of accounting and administrative practices. An important element of this system is a comprehensive internal audit and loss
prevention program.

Management continually reviews, modifies and improves its systems of accounting and
controls in response to changes in business conditions and operations and in response to recommendations by the independent registered public accounting firm and reports prepared by the internal auditors.

Management believes that it is essential for the Company to conduct its business affairs in accordance with the highest
ethical standards and in conformity with the law. This standard is described in the Companys code of ethics, which is publicized throughout the Company.

Audit and Finance Committee of the Board of Directors

The
Board of Directors, through the activities of its Audit and Finance Committee (the Committee), participates in the reporting of financial information by the Company. The Committee meets regularly with management, the internal auditors
and the independent registered public accounting firm. The Committee reviewed the scope, timing and fees for the annual audit and the results of the audits completed by the internal auditors and independent registered public accounting firm,
including the recommendations to improve certain internal controls and the follow-up reports prepared by management. The independent registered public accounting firm and the internal auditors have free access to the Committee and the Board of
Directors and attend each regularly scheduled Committee meeting.

The Committee consists of five outside
directors all of whom have accounting or financial management expertise. The members of the Committee are Daniel Boggan Jr., Robert F. Moran, John F. McGovern, David Scott Olivet, and Matthew A. Ouimet. The Committee regularly reports the results of
its activities to the full Board of Directors.

Managements Annual Report on Internal Control Over Financial Reporting

The management of Collective Brands, Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. With the participation of the Principal Executive Officer and the Principal Financial and Accounting Officer, our management conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework and criteria established in Internal Control  Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our
management has concluded that our internal control over financial reporting was effective as of January 28, 2012.

Collective Brands, Inc.s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report dated March 22, 2012 on our internal control over
financial reporting which is included on page 58.

We have audited the internal control over financial reporting of Collective Brands, Inc. and subsidiaries (the
Company) as of January 28, 2012, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of January 28, 2012, based on the criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements and financial statement schedule as of and for the year ended January 28, 2012, of the Company and our report dated March 22, 2012, expressed an unqualified opinion on those financial statements and
financial statement schedule.

We have audited the accompanying consolidated balance sheets of Collective Brands, Inc. and subsidiaries (the
Company) as of January 28, 2012 and January 29, 2011, and the related consolidated statements of (loss) earnings, equity and comprehensive (loss) income, and cash flows for each of the three fiscal years in the period ended
January 28, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15 (b). These consolidated financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of January 28, 2012 and January 29, 2011, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 28, 2012, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of January 28, 2012, based on the criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 22, 2012, expressed an unqualified opinion on the Companys internal control over financial reporting.